A Good Start on Tax Reform
By The Editors
http://www.nationalreview.com/node/372097/print
It is a testament to the scale and absurdity of the U.S. tax code that it takes a 979-page bill to reform and simplify it. That’s how much paper Representative Dave Camp’s proposal, from the House Ways and Means Committee, uses to reduce marginal rates for businesses and individuals, limit tax deductions and exclusions, and simplify the system overall. And a great deal of the proposal is good.
It’s hard to object, for instance, to the 89 sections of the bill devoted just to removing “deadwood” (provisions that no longer affect taxes paid) from the tax code. We can’t count the number of distortionary or costly active provisions in the individual and corporate income-tax codes that Camp’s bill eliminates. Of course, each of these changes will attract opposition from somewhere, but such is the price of tax reform.
What are the benefits? It would cut the top corporate tax rate, one of the highest in the world, to 25 percent, while the top individual-income rate would fall to 35 percent. It would reduce the complexity of the code significantly — allowing 95 percent of Americans to take just the standard deduction — while maintaining similar levels of revenue and encouraging business investment. In other words, we can reliably expect to move in the right direction along the Laffer curve. (Simplifying the tax code also reduces the incentives and opportunities for mischief by tax collectors, and Camp’s bill includes further measures to insulate taxpayers from political abuse by the IRS.)
Across income levels, Camp’s proposal is essentially neutral: Incentives are improved without giving Democrats any chance to wail about tax cuts for the rich. Of course, some will pay more and some will pay less. The bill’s redistribution is largely from single Americans to families, and from firms that have won special advantages in the tax code to those that have typically seen high tax bills. Both of these are, besides any considerations of fairness, good economic policy.