As I note in this Bloomberg View article about the Republican bill, any tax reform that scales back tax breaks is going to create winners as well as losers. It’s no argument against a reform that it raises taxes on some people. We have to ask whether the people who lose out from reform can take the hit, whether the tax breaks they are losing are justified or unjustified, and whether the overall pattern of winners and losers makes sense.
The bill gets a mixed grade on those tests, as I write. But there’s an additional political problem that I didn’t note.
This bill is complicated, and surely a lot of that complication is baked into the enterprise of reforming the tax code. (I do think, however, that the reform is more complicated than necessary.) Even among people who look through its provisions, a large fraction are not going to know if they will pay more or less under the reform. To figure it out they would have to do a lot of work — comparable to, probably more than, the amount of work they have to do each year to figure out how much they owe at tax time. And of course most people are not going to look at the provisions in the first place.
I suspect that a lot of people, when they hear that a tax reform has winners and losers, are going to assume that they will be among the losers even if they aren’t. Or, at least, that they will be “loss averse,” more mindful of the risk of a tax increase than of the opportunity of a tax increase. In part that’s because people are skeptical of politicians’ promises.
If I’m right about this, it means that voters are going to have a bias against nearly any tax reform, even a very well-designed one.