There's gotta be a better way: Tax reforms to please the masses

Article Highlights

  • In reality the Buffett Rule only builds another barrier to sensible #taxreform.

    Tweet This

  • Implementing reform will not be easy when Congress takes votes more often to measure allegiance than to solve problems.

    Tweet This

  • The top 5% of income earners in 2009 paid 59%of all income taxes while the bottom 50% paid just 2%

    Tweet This

With tax day deadline here, Congress returned to Washington Monday to vote on the "Buffett Rule," a proposal to impose a minimum 30 percent tax on people earning more than $1 million.

The proposal, which failed in the Senate, resembles the alternative minimum tax (AMT) in one way -- it was created to ensure the wealthy pay a "fair share" of taxes, but in reality it only builds another barrier to sensible tax reform.

AEI resident fellow Alex Brill explained in a recent AEI Tax Policy Outlook that the AMT needs to be repealed as part of a larger plan to reduce compliance costs associated with paying taxes while also broadening the tax base and removing distortions and uncertainty in the tax code.

Some of his suggestions include reducing loopholes and deductions that benefit job creators while still lowering the overall U.S. corporate tax rate, for which the U.S. has the dubious distinction of having the highest in the world.

 

Brill's argument neatly summarizes another issue, noted by AEI scholars Kevin Hassett and Aparna Mathur that shows the higher the taxes on corporations, the bigger the burden on workers' wages.

 

But implementing reform will be no easy task, particularly in a Congress that takes votes more often to measure party allegiance and build an election-year platform than to solve problems. AEI resident scholar Alan Viard explains that the barrier to finding solutions can be attributed in part to complex provisions adopted to accommodate special interests as well as to "ensure that they will function appropriately in every specific situation that might arise."

Writing recently for NPR Planet Money, Viard called that goal laudable, but taxing, so to speak.

"When Congress adopts new provisions to address specific issues, it often pays little heed to how they interact with existing provisions. Once complexity creeps in, it's hard to get rid of it.," he wrote.

Of course, it is no surprise that politicians would vote on talking points, especially when polls show that most Americans think their wealthy neighbors should pay more in taxes. That has been a consistent position for more than 30 years of poll-taking, says AEI senior fellow Karlyn Bowman, who recently released an extensive evaluation of polling data on taxes over the last 75 years.

 

In reality, the top 5 percent of income earners in 2009 paid 59 percent of all income taxes while the bottom 50 percent paid just 2 percent of total U.S. income taxes, according to the IRS. Still, with the federal budget deficit expected to climb past $1 trillion this year -- for the fourth year in a row -- and with little agreement on where to claw back on spending, Brill warns that Congress must make a first step toward tax reform if the U.S. is to move from a system that encourages debt over equity and taxes income rather than consumption -- both habits that impede incentives for saving and sap revenue that could spur economic growth.

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

Making Ryan's tax plan smarter
image The teacher evaluation confronts the future
image How to reform the US immigration system
image Inversion hysteria
AEI on Facebook
Events Calendar
  • 01
    MON
  • 02
    TUE
  • 03
    WED
  • 04
    THU
  • 05
    FRI
Wednesday, September 03, 2014 | 9:00 a.m. – 10:30 a.m.
From anarchy to Augustus: Lessons on dealing with disorder, from Rome’s first emperor

We invite you to join us for two panel discussions on how Augustus created order from chaos 2,000 years ago, and what makes for durable domestic and international political systems in the 21st century.

Wednesday, September 03, 2014 | 12:00 p.m. – 1:30 p.m.
Multiple choice: Expanding opportunity through innovation in K–12 education

Please join us for a book launch event and panel discussion about how a marketplace of education options can help today's students succeed in tomorrow's economy. Attendees will receive a complimentary copy of the featured book.

Thursday, September 04, 2014 | 12:00 p.m. – 1:30 p.m.
How conservatives can save the safety net

Please join us for a luncheon event in which our panel will discuss what conservatives can learn from how liberals talk and think about the safety net and where free-market economics, federalism, and social responsibility intersect to lift people out of poverty.

No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.