When politicians in Washington and Atlanta talk up the same idea, they’re usually onto something or up to something. In the case of the suddenly fashionable idea of making taxes broader, flatter, simpler and lower, taxpayers can be more relieved than suspicious.
The “Fiscal Solutions Tour” rolled into Atlanta last week. Its barnstorming economists and politicos want to solve the federal debt problem by cutting spending and reforming entitlements and taxes.
They described a tax code for individuals and business alike with fewer, if any, deductions and credits. The changes would be offset in part by lowering tax rates, though revenues on the whole would likely rise. (The group also favors a consumption tax to supplement existing levies; another bipartisan debt commission, as well as yours truly, believes the budget can be balanced without a new national sales tax.)
Listening to them, I was reminded of similar reforms for Georgia a special panel proposed earlier this year.
Unlike on the federal level, the state’s proposed changes are designed to keep revenues flat. Of course, unlike Washington, the state balances its budget each year and hasn’t racked up trillions in debt.
The idea of broadening the tax base, closing loopholes and setting marginal rates as low and flat as possible isn’t new. Economists have long said such a tax code would cost less to enforce and follow, reduce distortions in the market, and punish success to a lesser degree.
What is new is that politicians on both sides of the aisle are warming up to the concept, albeit still slowly in some cases.
In Georgia, after proponents addressed initial fears that their plan would lead to a massive tax increase, a tax-reform bill (HB 385) is before the Legislature. With Republicans in control, these conservative ideas ought to prevail — if legislators can resist special interests favoring the status quo.
“Fiscal Solutions” member Alice Rivlin, a former White House and congressional budget chief, said the right is more accepting of the idea.
“The shift that I’ve seen recently,” she told me, “is among Republicans who have come to realize…that there are a lot of subsidies in the tax code. And they used to resist that idea, and [said] anything that lowered your taxes was good.
“But I think a lot of Republicans have come to realize, we subsidize a lot of activities. And we do some of it with direct spending, and we do a lot of it in the tax code. And doing it in the tax code isn’t better.”
Not all tax cuts are created equal, of course, and government shouldn’t pick winners through tax or spending policy. Better to let individuals and businesses make decisions on the economic merits, rather than inviting them to choose based on tax treatment.
Rivlin continued: “And then there’s the liberals. I’ve found that the knee-jerk reaction of most liberals is negative, because they think, ‘Lower rates for rich people? That’s terrible!’
“But you have to look at the whole incidence [of taxation]. Because, actually, most of the benefits of the deductions and exclusions and so forth goes to upper-income people. So, they aren’t getting off the hook.”
The bulk of the work, in Washington as in Atlanta, remains on the spending side of the ledger. But if politicians back off these sensible tax reforms, start getting suspicious.
– By Kyle Wingfield
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