Some Facts about Federal Tax Reform

A report last year by The Hamilton Project, which is affiliated with the Brookings Institute did an informative evaluation of some of the facts that underlie any effort for reform of our national tax policy. The Report is titled A Dozen Economic Facts About Tax Reform. They emphasize the need to base our decisions on current facts and note that

Since the last major tax reform in 1986—roughly a generation ago—the number of loopholes, special preferences, and the sheer volume of the tax code have ballooned, resulting in a system widely considered to be inefficient, complex, and unfair, as well as an impediment to growth. Drawing a page from successful prior reform efforts, advocates of comprehensive tax reform generally urge that we broaden the base and lower rates.
However, the current economic context for tax reform is far more challenging than it was in 1986. Most immediately, the economy is still in the midst of a slow recovery with an unemployment rate that remains too high. Even with robust rates of job growth, it will take years to close the jobs gap.
An important role of fiscal policy in the near term is to support recovery in the labor market.But in the longer run, the United States is contending with three economic problems: a daunting outlook for budget deficits that imperils our well-being, an increasingly competitive global economy for many American workers and industries, and rising income inequality. The tax code interacts with each of these problems, and a successful tax reform effort will need to address each of them—or at least avoid making any of them worse.

They then provide detailed discussion in 12 areas:

1.  America collects lower revenues than other industrialized countries.
2.  Tax expenditures represent a large share of total government spending.
3.  The tax code subsidizes some activities and penalizes others.
4.  The tax system has become less progressive over time.
5.  Virtually all American families, even low‑income families, pay taxes.
6.  There is a limit to what tax reform can accomplish.
7.  Individuals and the economy will feel every approach to tax reform.
8.  The benefits from tax expenditures are not equally shared.
9.  Cutting individual income tax rates would modestly increase the earnings of the
typical American family while substantially increasing the federal budget deficit.
10.  Deficit-financed tax cuts do not spur economic growth in the long run.
11.  Corporate tax reform can improve U.S. competitiveness in several different ways—
but not necessarily all at once.
12  Addressing the deficit will require policy solutions equal to the size of the problem

The report makes interesting reading and is full of documented facts and tables and includes an appendix and references.


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