Tough politics are the barriers to true tax simplification
By Alex Brill @ AEI (September 12, 2012)
As we head toward the November elections, the debate over tax reform is intensifying. The simple truth is that the tax code has become riddled with ineffective social policy objectives and narrow, distortionary economic agendas. But two challenges face lawmakers seeking to rid the tax code of political favoritism and return it to its core function of raising sufficient revenue to cover the government’s obligations. First, there are the politically powerful forces bent on protecting various tax credits and preferences even if they are detrimental to the economy. Second but equally important are the complex economic questions involved in deciding which tax preferences are most harmful and which are actually helpful and appropriate.
The Joint Committee on Taxation reports that the number of tax preferences, or “tax expenditures” as they are often called, rose from 100 in 1981 to 150 in 2003 to 250 in 2009. As more of these special preferences have been added to the tax code, more decision-making in our economy is tax-motivated rather than economically efficient. As a result, tax compliance costs have risen, the tax base has narrowed, and higher tax rates are required to collect the same amount of tax revenue.
There is no doubt that many tax expenditures need to be curtailed or repealed to create a fairer, simpler, and more efficient tax system…