The Corner

Re: Tax Reform

This reader pinch-hits for Ramesh:

Jonah –

I was interested to see your recent comment in the

Corner:

“But it seems to me as a matter of both politics and

theory that raising tax rates in exchange for tax

simplification shouldn’t be ideologically verboten.

The obvious argument is that by closing loopholes,

reducing the corrupting power of politics in tax

policy, eradicating inefficiencies and rationalizing

the whole system you will make the economy more

efficient and productive. Therefore if the price of

achieving this comes in the form of marginally raising

rates, it might well be worth it. For example, I would

gladly pay, say, $500 dollars more a year — even

above what I might save from firing my accountant –

in exchange for removing the worry and hassle of tax

time.”

I agree with you in theory. Here’s the problem,

though — Reagan agreed to just such a deal in 1986,

with the result that lots of deductions were

eliminated to broaden the tax base and rates were

significantly reduced. Unfortunately, when the wheel

turns and the politicians (usually the Ds, but not

always) want to raise taxes, they’ll jack the rates

back up but won’t restore the lost deductions — which

is exactly what happened in 1990 (aka the tax bill

that probably lost GHW Bush the 1992 election).

Broadening the tax base in order to reduce rates would

truly be a wonderful thing, but since base-broadening

tends to be a one-way ratchet (at least as far as the

middle class taxpayer is concerned), the merits of the

strategy could be seriously questioned on a practical

level.

Love your stuff!

Best regards,

Keith

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