Tax Policy

Reforming taxes will not be easy 4/1/17

Article: "The red and the brown"  

Tax reform hasn’t been accomplished in the US since 1986. Where once the passage of bills was smoothed by including federal money for pet projects in congressmen’s districts, tax breaks are now the preferred lubricant. The growth of the federal tax code, which has tripled in length in the past 30 years, is often cited as proof that the country is overtaxed. But its size reflects all those special tax breaks. For individuals, the exemptions turn a tax system whose headline rates are redistributive, by rich-world standards, into one which is not. The two most popular exemptions are the mortgage interest and charitable giving deductions, both of which will be difficult to change.

The same is true of company taxation. The top marginal rate, of 39%, is an outlier by international standards (the OECD average is 25%). But between 2006 and 2012, two-thirds of companies paid no federal tax, according to a study by the Government Accountability Office (GAO). Large companies that were profitable paid a federal tax of 14% on their net income between 2008 and 2012, according to the GAO, a rate that rose to 22% once state and local taxes were included.

Killing the special exemptions will be critical but will be the hardest to accomplish politically as those exemptions exist because of powerful, influential lobbyists. Over 230 House Republicans have signed a pledge not to vote for any tax rise, giving them cover to reject a bill that offends constituents or donors by killing a tax break.

>Interesting comment: “Mitt Romney had one decent idea back in 2012, and that is to set a limit on either the amount of deductions or the percentage --- say a maximum of $50,000 deductions, or perhaps cap it at 10% of gross income. “