Monday, September 20, 2004

Lawrence Lindsey offers his views on tax reform in a Wall Street Journal op-ed, Simplify, Simplify, Simplify. The conclusion:

The problem with simplification is a political one. In 1986, President Reagan led a revenue-neutral tax reform that broadened the base and lowered tax rates in a revenue-neutral way. Later, the Democrats kept the broader base and simply raised rates. Conservatives justifiably fear that the same might happen from any tax reform that moved toward a more level playing field. This is especially true if we were to merely add another tax on top of the existing set of taxes.

Thus, the best form of simplification is the kind that eliminates some taxes completely. The corporate income tax, and most or all of both the payroll and personal income taxes could be replaced by a broad based cash-flow or revenue-based tax. This would shift the compliance burden to business and away from individuals. It would also level the tax playing field among different types of income. Alternatively, the corporate and personal income tax bases could be simplified in a way that significantly reduces the opportunities for sheltering or deferring taxes, and thus allow for lower rates. Whatever path the president ultimately chooses, there are substantial benefits to the American economy from making the effort.