Deficit Panel Goes Wobbly on Tax Overhaul
The bipartisan deficit commission draft report includes options for a simpler income tax structure, but the panel threw away the chance for bolder tax reforms.
When it comes to tax reform, the bipartisan deficit commission needs to think more boldly. The co-chairs’ draft report includes options for a simpler income tax structure with lower rates and fewer deductions. That would be nice, and would repeat the basic thrust of the 1986 bipartisan tax reform (which was a significant achievement but one watered down in subsequent tax code changes).
Co-chairs Erskine Bowles and Alan Simpson raise politically sensitive possibilities such as reducing or eliminating the mortgage interest deduction and the child tax credit. They offer the interesting idea of an automatic trigger that would reduce loopholes if broad tax reform is not enacted by end-2012.
In other words, Bowles and Simpson don’t seem to be afraid of shaking things up, which raises the question of why their proposals ultimately amount to fiddling with the current tax system rather than replacing it with something fundamentally different.
Missing from the document are any options that would shift the tax burden from income to consumption, something much needed in an economy that’s habitually long on consumption and short on long-term investment. Why not consider a VAT or other consumption tax as a full-on substitute for the income tax? That kind of reform would not be chipped away at so easily in future years.
Similarly, the proposal suggests a small but gradually increasing gas tax to fund transportation spending. There’s no mention of a broader carbon tax, which would address environmental and national-security issues as well as raise money. If you want to maximize the national security benefit, consider adding an oil import fee. If we’re going to have a new federal gas tax, let’s have a serious energy tax overhaul.
The co-chairs’ proposed tax policies would be better than what we have now, but that’s too low a standard. The 21st century requires tax reforms more sweeping than any done in recent decades.