The Blank Slate Tax Reform Trap

July 2nd, 2013 at 9:08 am

I’ve not paid much attention to the latest disturbance in the tax reform force: the zero-based plan by Senators Baucus and Hatch to wipe out all tax expenditures and insist that advocates argue the merits of each one if they want them put back in the tax code.  They call it a “blank-slate” approach to tax reform.

Why have I not entertained my readers with information on this idea, one seen most recently, btw, in Bowles-Simpson’s original budget proposals?  In part, because as Bruce “Pull-No-Punches” Bartlett puts it today:

The idea that we can wipe the slate clean and start from scratch is ridiculous pie-in-the-sky thinking and an abrogation of responsibility by the Senate’s two principal leaders on tax issues. They ought to be willing to exercise some judgment and put forward a specific proposal of tax expenditures they think are worthy of abolition in order to clean up the tax code and lower rates. That’s what Ronald Reagan did in 1985, which led to enactment of the Tax Reform Act of 1986.

Until a specific proposal on the table can be discussed, analyzed and amended, tax reform isn’t going anywhere. Senators Baucus and Hatch are not helping; they are just wasting time.

Also, in the benighted dystopia known as DC tax reform, one must always be aware that the tax-reform trap articulated by Marr and Huang lurks around every corner.  Read the link, but the idea is that if lawmakers promise to broaden the base and lower the rates without locking in a new, higher revenue targets first, we’re likely to get lower rates and…and…nothing in terms of revenues.

Many legislators I hear from on this point seem to think that when considering the kind of idea these Senators are proposing, the choice is between revenue neutrality and lower revenues, with the former viewed as the “progressive” preference.

In fact, tax reform that fails to raise any new revenues implies that budget sustainability will be achieved exclusively through spending cuts, which has largely been the approach so far (we’ve done something like 70/30, cuts to new revs).

If Bruce is right, as I suspect he is, then I guess there’s nothing to worry about here other than a bunch of noise and scurrying around that won’t amount to anything.  But on the off chance that this has any legs, we’d best make sure those legs don’t get caught in the tax reform trap.

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One comment in reply to "The Blank Slate Tax Reform Trap"

  1. Pinkybum says:

    Not to mention “broadening the base” means that they want to increase taxes on the poor and middle class. We already have “fairly” progressive tax rates broadening the base just means flattening out the curve therefore increasing rates on lower incomes. If “broadening the base” means getting rid of the EITC and mortgage interest relief then poor and middle income families will experience a large increase in taxes. Reforming the tax code this way is just right wing flim-flam. And, if the tax reform is “revenue neutral” as was claimed by Paul Ryan et al – what is the point? Who would benefit from a lower overall rate? I’m guessing it would be the already mega-wealthy.