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HomePolicyAmerica Needs Tax Reform, But Can the GOP Deliver?

America Needs Tax Reform, But Can the GOP Deliver?

Paul Ryan takes questions about the Senate health care bill during his weekly press conference on Capitol Hill in Washington, U.S., July 13, 2017. (Photo: Reuters)
Paul Ryan takes questions about the Senate health care bill during his weekly press conference on Capitol Hill in Washington, U.S., July 13, 2017. (Photo: Reuters)

Paul Ryan takes questions about the Senate health care bill during his weekly press conference on Capitol Hill in Washington, U.S., July 13, 2017. (Photo: Reuters)

It’s depressing to see how Republicans are bungling the ObamaCare issue. But it’s also understandable since it’s politically difficult to reduce handouts once people get hooked on the heroin of government dependency (a point I made even before Obamacare was enacted).

Unfortunately, I fear that the GOP might bungle the tax issue as well. I was interviewed the other day by Dana Loesch on this topic and highlighted several issues.

Here’s the full discussion.

What’s especially frustrating about this issue is that taxes should be reduced. A lot.

Brian Riedl of the Manhattan Institute debunks six tax myths. Here they are, followed by my two cents.

Myth #1: Long-term deficits are driven by tax cuts and falling revenues

Fact: They are driven entirely by rapid spending growth

Brian nails it. I made this same point earlier this year. Indeed, because the tax burden is projected to automatically increase over time, it is accurate to say that more than 100 percent of the long-run fiscal problem is caused by excessive spending (particularly poorly designed entitlement programs).

Myth #2: Democratic tax proposals would significantly reduce the deficit

Fact: Their most common proposals would raise little revenue

Once again, Brian is right. There are ways to significantly increase the tax burden in America, such as a value-added tax. But the class-warfare ideas that attract a lot of support on the left won’t raise much revenue because upper-income taxpayers have substantial control over the timing, level and composition of their income.

Myth #3: Taxing millionaires and corporations can balance the long-term budget

Fact: These taxes cannot cover Washington’s current commitments, much less new liberal wish lists

Since even the IRS has admitted that upper-income taxpayers finance a hugely disproportionate share of the federal government, it hardly seems fair to subject them to even more onerous penalties. Especially since the IRS data from the 1980s suggest punitive rates could lead to less revenue rather than more.

Myth #4: The U.S. income tax is more regressive than other nations

Fact: It is the most progressive in the entire OECD

There are several ways to slice the data, so one can quibble with Brian’s assertion. But when comparing taxes paid by the rich compared to taxes paid by the poor, it is true that the United States relies more on upper-income taxpayers than any other developed nation. Not because we tax the rich more, but because we tax the poor less.

Myth #5: The U.S. tax code is becoming more regressive over time

Fact: It has become increasingly progressive over the past 35 years

Brian is right. Child credits, changes in the standard deduction and personal exemptions, and the EITC have combined in recent decades to take millions of households off the tax rolls. And since the U.S. thankfully does not have a value-added tax, lower-income people are largely protected from taxation.

Myth #6: Tax rates do not matter much to economic growth

Fact: They are among the most important factors

There are many factors that determine a nation’s economic success, including trade policyregulationmonetary policy, and rule of law, so a good tax code isn’t a guarantor of prosperity and a bad tax system doesn’t automatically mean malaise. But Brian is right that taxation has a significant impact on growth.

In the interview, I said that I had two fantasies. First, I want to junk the corrupt internal revenue code and replace it with a simple and fair flat tax.

Second, I’d ultimately like to shrink government so much that we could eliminate the income tax entirely.

Many people don’t realize that income taxes only began to plague the world about 100 years ago.

If we can somehow restore the kind of limited government envisioned by America’s Founders, the dream of no income tax could become a reality once again.

But if Republicans can’t even manage to cut taxes today, when they control both the executive and legislative branch, then neither one of my fantasies will ever become reality.

Written by

Daniel J. Mitchell is a Senior Fellow at the Cato Institute, and a top expert on tax reform and supply-side tax policy. Mitchell’s articles can be found in such publications as the Wall Street Journal, the New York Times, Investor’s Business Daily, and the Washington Times. He is the author of "The Flat Tax: Freedom, Fairness, Jobs, and Growth," and co-author of "Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It."

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