Broaden the base — a tax reform visualizer

Classic income tax reform, like the reforms enacted in 1986, involve broadening the tax base and lowering statutory tax rates. To broaden the tax base, lawmakers will need to do more than close obscure tax loopholes. They will need to limit itemized deductions.

Twenty20.

President Obama and the House Republicans have backed the idea. Hillary Clinton and Donald Trump have as well. It’s an important reform, but it’s not easy.

Here is what Richard Rubin recently wrote in the Wall Street Journal:

It’s easy to talk about closing unjust loopholes—and depending on your definition of justice, there are a few of them out there. But the reality is that many of the biggest breaks are the ones that benefit the upper-middle class: itemized deductions.

To illustrate the point, Rubin linked to a new Open Source Policy Center interactive visualization that we recently developed. From our initial proposed concept, open source modelers and developers T.J. Alumbaugh, Brendan Rhodes, and Sean Wang made the idea into reality. Users are able to pick among the three largest itemized deductions — charitable contributions, mortgage and other interest paid, and state and local taxes — and eliminate one, two, or all three. From there one can see how these changes affect total revenues, the distribution of taxes paid, and the number of taxpayers who take the standard deduction.

Interactive visualizations tell many stories: The Wall Street Journal article highlighted the fact that itemized deductions benefit higher income earners. Another fact is that these breaks are very costly – about $176 billion in 2016 or enough to finance a nearly 13% tax cut for every individual income tax bracket. And finally, one should remember that itemized deductions add significant complexity to the tax code. Repealing a few of the big ones will result in tens of millions more taxpayers choosing to take the standard deduction, making this perhaps the biggest feasible tax simplification option available.

See for yourself:

Alex Brill is a Research Fellow at the American Enterprise Institute. Matt Jensen directs the Open Source Policy Center.