All I Want for Christmas is Tax Reform

That's not actually too far from the truth.  I'd like long-term assignments at work (I'm independent, after all), and maybe a winning lottery ticket, but the former being routine and the latter being a bit of a pipe dream, I'll take tax reform.

Now what constitutes effective tax reform is a whole 'nother thing.  After all, if you look at the 70,000-odd small-print pages of the tax code now, and then you look at the Senate Republicans' version of the reform that has been leaked out, well, it looks like it's just a bit of a different presentation of the existing code.

I want something real -- and I expect that President Trump wants that, too.  And I also expect that the House leadership on the Republican side is pretty much on board with real reform.  But could we possibly try to get something that is going to achieve what is needed?  I'm not sure.

What is needed, by the way?  Well, it starts with simplification.  The two polar opposite approaches are (A) what we have now, a steaming pile of legislative elk dung, and (B) a completely flat tax system as described in this brilliant essay from 2014.  If we are not leaving the current system in place, and we don't think we can get a completely flat system, purged of spaghetti code, then at least we have a right to keep pushing the reform bill to the flat side of that scale.

Remember that taxation is not based on a notion of fairness; its purpose -- which we often forget -- is to generate the amount of revenue needed to fund the Constitutionally-approved functions of the Federal government.  "Fairness" is not part of that equation, although "unfairness" is not particularly welcome, either (the problem with "fairness" in an income tax is that you can't cut rates for people who aren't paying anything).

The income tax generates a gargantuan percentage of those revenues, of course.  And if you taxed income at 100%, no one would bother to work.  If you taxed income at 0%, no revenue would be generated.  So there is an obvious balancing point, a rate that would be high enough that it would actually produce revenue, but low enough that it would not disincentivize working.

I would be thrilled if Congress started with a simple, two-parameter system, X and Y.  The first X dollars are taxed at a rate of zero, and every dollar above X is taxed at Y%.  I would think that X should be about $25,000, and Y should be about 17%.  Obviously those two figures are dials that can be turned a bit to approach that peak tax revenue outcome; and it makes little sense to gauge an outcome by looking at applying those parameters to a recent year's income pattern because of the huge impact a flat tax would have on the economy in general.

But I don't want to get too much into proposals and philosophy, as much as I want to talk spectrum.  There is a spectrum, from the hyper-complex, spaghetti-code version we have now, all the way to a simple, flat, two-parameter, back-of-the-postcard version that puts H&R Block out of business.

And I want every stinking Congressman from both Houses to start with the latter end of that spectrum, and determine that he or she will support only a bill that is far, far over toward the flat side of the scale.  Anything -- any provision that moves away from that side by subsidizing this or penalizing that, well, that has to be justified and the standard has to be astronomically high to put it in the bill.

I want it to stop, the idiocy that tax provisions influence what we do.  Don't incentivize me to get married, or to have kids, or take out a mortgage, or to donate to charity.  Let me decide that based on the exigency of my own circumstance and not the tax code (for the record, though, I am married, have kids, have a mortgage and donate to charity).

The government will find that after a few years it can pay for those Constitutionally-mandated Federal roles just fine, especially if the Federal role is reduced to just the Constitutionally mandated one, of course.

I'd rather have that for Christmas than a tie.

Copyright 2017 by Robert Sutton
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