Talking Tax Reform at the Milken Institute Conference

May 3rd, 2012 at 6:11 pm

What’s that?  You want to kick back and watch a bunch of wonks go after each other on tax reform?  Well, grab that tub of popcorn and settle into the bean bag because here’s your chance.  It’s Bill Gale and I against Steve Forbes and Doug Holtz-Eakin, arguing about fairness in the code and what’s possible re federal tax reform.

To summarize my views:

–Once the economy recovers, we need to raise more revenue; spending cuts alone won’t do it.

–Tax reform should be progressive—as I emphasize with a slide at the beginning, the system of taxes and transfers has become less progressive—inequality has actually grown faster on a post-tax than a pre-tax basis.

–Those who tout revenue-neutral tax reform through “broadening the base and lowering the rate” need to say very clearly which loopholes they plan to close—none of this “revenue-source-to-be-named-later” stuff.

–On this last point, given our fiscal pressures, revenue neutrality isn’t an adequate goal…see point one.

–We’re all for greater simplicity, but don’t kid yourself.  Flat tax ideas can quickly get complicated—I thought Bill Gale was very strong on those points.

–The evidence is not kind to “large responders” like Steve and Doug, who argue that raising tax rates will kill jobs and growth.  That’s not to say people don’t respond to tax changes.  It’s to say that especially when those tax changes are “small,” like sunsetting the highend Bush cuts such that the top income tax rate would go from 35% to 39.6%, we don’t see big changes in labor supply, investment, business formation, etc.  See here for the details on these points.

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