Tax re­form, cuts not same thing

Northwest Arkansas Democrat-Gazette - - EDITORIAL PAGE -

Congress adopted a bud­get last week, paving the way for the in­tro­duc­tion of a tax bill, and the White House re­sponded (as it is wont to do) with a tweet. “Bud­get passes house,” it read. “Mo­men­tum for tax cuts grow­ing. #TaxCuts #TaxRe­form.”

Sadly, this mes­sage be­trays a con­fu­sion that does not bode well for the prospects for smart tax re­form. Tax cuts and tax re­form aren’t the same thing. Tax re­form is vi­tal to strengthen the econ­omy. Cuts with­out re­form — mean­ing higher gov­ern­ment bor­row­ing and a shakier fis­cal po­si­tion — will weaken it.

The bud­get res­o­lu­tion en­vi­sions a tax plan that will cost the Trea­sury $1.5 tril­lion in for­gone rev­enue over the next 10 years. If that were ac­cu­rate, it would be $1.5 tril­lion too much, be­cause U.S. pub­lic debt is al­ready on a ris­ing tra­jec­tory. But the rev­enue short­fall un­der the pro­posed “frame­work” would prob­a­bly be big­ger than that. (One can’t say for sure, be­cause the plan is still full of holes.)

It’s true that well-de­signed tax re­form can raise eco­nomic growth, off­set­ting some of the so-called static loss of rev­enue. It’s not true that growth can make tax cuts en­tirely self-fi­nanc­ing. With the econ­omy at full em­ploy­ment, there’s no scope for the kind of growth mir­a­cle that the ad­min­is­tra­tion pre­dicts.

The ba­sic ap­proach should be to broaden the tax base, lower the rates, and avoid dis­tort­ing eco­nomic choices in un­in­tended ways. The cur­rent code is so en­crusted with point­less com­plex­ity that, con­sis­tently pur­sued in a fis­cally re­spon­si­ble way, a sim­pler sys­tem could bring im­prove­ments in growth, wages and liv­ing stan­dards — but wise re­form­ers wouldn’t take that for granted.

Re­form should also aim to make the sys­tem as fair as pos­si­ble. This means ad­just­ing the bur­den among dif­fer­ent groups of tax­pay­ers — al­ways re­mem­ber­ing that one per­son’s tax cut is some­one else’s tax in­crease. Who gains and who loses is a cru­cial ques­tion for any tax-re­form plan.

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