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Since the past election there has been talk of corporate tax cuts. Many attribute some of the rise in securities markets in the US to optimism such cuts will be accomplished. With the tax code and associated tax regulations running approximately 73,000 pages, is more tinkering with the tax code a productive activity? In a new book by T.R. Reid entitled, A Fine Mess, the author categorically says NO. What is really needed is true tax reform. In the book Reid covers the tax systems of some other developed nations and how they are much simpler. For example, in New Zealand, Japan and Denmark filing a personal tax return takes less than 20 minutes. The secret is BBLR – Broaden the Base Lower Rates. Tax experts and economists estimate the US could cut maximum tax rates by over 30% and raise the same amount of money by following BBLR guidelines.
So, why is this not happening? The reason is lot of people and companies have special treatment under the current system. Under BBLR guidelines they would lose their tax preferences. In the simplest systems there are no deductions, credits or preferences. All income is treated the same and all economic benefits are treated as income. For example, that would make employer provided health insurance taxable. In short you make a lot of people upset by taking away their tax advantages.
The book does not just cover personal and corporate tax systems. Other taxation methods are also covered. These methods are compared for how much a tax regime impacts economic decisions. Economists strive for a tax method that does not distort business and investment decisions. As is stated in the subtitle of the book, the goal is to find a simpler, fairer and more efficient tax system. If you are interested in finding how government officials, economists and others around the world think about this topic and employ different tax methods to achieve these goals, I recommend reading this book. The book was surprisingly easy to read considering the topic. Exceptions to this may be quotes from the current tax code used as examples of how complex the code has become. I especially enjoyed a section concerning testimony to Congress from a certain IRS Commissioner. (Essentially, “Don’t blame the IRS for the tax code, you write it.”)
The book is: A Fine Mess – The Global Quest for a Simpler, Fairer, and More Efficient Tax System. The author is T.R. Reid.
Russell Malley
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I have started Reid's book, but thought I would go ahead and comment. I read another really good book on taxes a couple of years ago. The Benefit and the Burden by Bruce Bartlett. Good history of taxes and information on how US got into mess that it is in. Partly because we use the tax code to address problems that the Congress doesn't really want to discuss and pass regular laws for. I think the whole talk about lower rates is ridiculous. 2/3 of the corporations don't pay corporate taxes at all thanks to the thousands of loopholes. I recently saw a list of companies that actually do pay taxes that would have more revenue when the tax rate would reduce. Companies one might invest in?
We need entirely new tax code. When it changed during the Reagan administration, the proposed code came from the Treasury Department. I can't see either the Congress or the Treasury Department taking this on. Can you?
Well, back to reading Reid's book.
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Rank: Administration
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Looks like I have to add another book to my list of things to read. A Fine Mess does have a bit of taxation history included. Mr. Reid states that tax reform seems to come in 32 year cycles in the US. He is hoping for a comprehensive tax reform act of 2018, 32 years after the 1986 reform. In the intervening years Congress complicates things so much that reform is needed again. I agree part of the problem is Congress not wanting to openly discuss some issues. Using the tax code is also a way to reward friends without the results being seen by the public.
Unfortunately, I do not see the current Treasury Department initiating real reform nor anyone else who has enough Congressional influence to get reform started. All the proposals I have heard are more tinkering with an already too complex system.
Russell Malley
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