Jackie Calmes has a helpful article outlining the Obama administration’s tax reform goals. As a friend explained to me, any effort to overhaul the tax code in time for the coming expiration of the all-but-renewed 2001 and 2003 tax cuts will have to happen this year.
The objective is to rid the code of its complex buildup of deductions, credits and exemptions, thereby broadening the base of taxes collected and allowing for lower rates — much like a bipartisan majority on Mr. Obama’s debt-reduction commission recommended last week in its final blueprint for reducing the debt through 2020.
Rather than increase individual and corporate tax rates to raise more revenues, a majority of the panel proposed eliminating or reducing many of the popular tax breaks for businesses and individuals that cost $1 trillion annually and using the additional revenues to lower rates and reduce deficits. The majority included five Republicans, among them two of the Senate’s most conservative members,Tom Coburn of Oklahoma and Michael D. Crapo of Idaho.
As we’ve argued many times before, it is far more important to lower marginal tax rates than to lower average tax rates if our goal is to improve long-run work incentives and increase economic output.