Column: Obama, McCain and taxes

In a new column for National Journal, I compare Obama's and McCain's proposals on taxes. Neither candidate makes much sense on the subject, I argue. With their fixation on the fate of the Bush tax cuts, both of them are missing the main point: comprehensive reform is needed--and needed so badly it may be unavoidable. The key is to broaden the income-tax base.

Income-tax rates are moderate in the United States by international standards, but the income-tax base is narrow, so the total raised is less than you would expect. Raising significant amounts of additional revenue--which is going to be necessary, even if no new spending is undertaken--would push income-tax rates quite high. The country needs to broaden its tax base and simplify the rate structure, and much the best way to do this is as part of a thorough overhaul of the code.

A lot of what should be done is neither liberal nor conservative. Ordinarily one thinks of a trade-off between equity and efficiency. At some point, those choices do have to be made, but the United States is not at that point. The current system is so inept, so complicated, and so replete with unintended consequences that it is easy to devise a win-win alternative--fairer and more conducive to growth at the same time. Yet neither Obama nor McCain gives any sign of embracing comprehensive reform. Quarreling over the fiscal legacy of the Bush administration is more to their liking. So much for post-partisan politics.

I mention a few specific possible reforms, based on some recommended pre-election reading: A short paper by Bill Gale of the Brookings Institution on priorities for fixing the system. You can find that here. If you want to read the rest of my column, it is here (the link expires in two weeks).

Comments

Americans want's global favor since we are the ones who are behind the high and mighty global rule.

Instead we get stripped of our jobs, our savings, homes and forced into debt and decline. We are taxed to death..reduced to lowered standard of living as if we were no more than a third world country. WHY? What good is breaks on income-tax returns going to do for those with no w/2?

What you are rulers, are ingrates..this country as you know it was built on the back of our ancestors and given to them by the founders who thought better of us and our futures than you do.
You funnel the worlds wealth to your own pockets and leave us in dirt or the sands dead on foreign lands for MORE wealth to YOU. We want dividends!

Posted by jj | June 6, 2008 7:04 PM

With their fixation on the fate of the Bush tax cuts, both of them are missing the main point: comprehensive reform is needed--and needed so badly it may be unavoidable.

Although I couldn't agree more that the country badly needs reform of the tax code, I strongly suspect neither Obama nor McCain is so much "missing" this point as avoiding it, for reasons of politics. Any reform of the tax code that is sufficiently radical to do any real good will require a bloody political fight.

I don't see much prospect of any decent reform plan getting enacted under a McCain presidency, given the likely composition of the Congress (though you never know, and of course McCain has shown some proclivity for working with Democrats). I reckon Obama is the more plausible agent of change in this regard. If I were he I'd avoid getting into specifics with respect to tax reform ideas if such an agenda were part of my plans (one can only hope tax code reform is part of his plans). Obama displayed admirable unwillingness to pander to the electorate on gasoline taxes -- an unwillingness that probably helped him finish off Hillary Clinton. But I don't think he can count on a similarly happy outcome flowing from the effects of candor on the tax code in general, at least to the extent that any substantive reform cannot wholly ignore the mortgage interest deduction.

Posted by Jasper | June 7, 2008 4:51 PM

Once in office, Obama would be in a much better position politically, and his character would be much more inclined, to lead a successful campaign for a new, simpler tax code. His being a good politician makes me mistrust him enough not to expect him to make the code nearly as simple as I would try very hard to do in his place, but I am absolutely convinced that McCain does not have the political standing with either party to do anything meaningful at all on this issue.

Posted by TK | June 9, 2008 8:16 AM

It sounds like we need another reform like the one pushed through by President Reagan in 1986. If you recall, that broadened the tax base, eliminated deductions and tax credits ("loopholes") and lowered marginal rates. It was a fine idea then and would be a fine idea now. I'm glad Mr. Crook favors reform along these lines.

Just to go back down memory lane a bit more, both the first President Bush, to a limited extent, and then President Clinton, to a far greater extent, undid much of the Reagan reforms by raising marginal rates and introducing lots of new deductions and credits. All 'W' did was try to return the tax system to the Reagan reforms.

Here's my idea for reform: eliminate payroll taxes altogether, and substitute one flat rate income tax with no deductions or credits.

Posted by DBL | June 9, 2008 1:31 PM

How about we eliminate all income taxes completely, why not use a property tax which seems to be much easier to enforce, and simpler to calculate.

Posted by vips | June 11, 2008 1:56 PM