Tax Cuts Are Tax Reform

by Ramesh Ponnuru

A lot of the commentary about Republican tax legislation posits a distinction between “tax cuts” and “tax reform,” the idea being that the latter scales back distortionary tax breaks and is therefore both harder and more virtuous.

I’m all for ending such tax breaks. But the value of a tax deduction depends on the tax rate to which it applies. The mortgage-interest deduction, to take an important example, is worth more to someone paying a 43 percent tax rate (the effective rate for some taxpayers today) than someone paying a 28 percent rate (the top rate after the 1986 reform). It follows that the deduction does less to distort economic activity at the lower rate, too.

The distinction between tax reform and tax cuts is not a hard-and-fast one.

The Corner

The one and only.