Tax Simplification – Harvey Golub op-ed piece in the WSJ

Harvey Golub’s op-ed piece from the Wall Street Journal on June 14, 2012:

http://online.wsj.com/article/SB10001424052702303768104577462353639535464.html?mod=googlenews_wsj

Harvey Golub: A Simple Tax Code Is a Fair Tax Code

The top 1% pays more in federal income taxes than the bottom 90%. But the system is biased toward the powerful in other ways.

[some bit from the article:]

The structure of the tax code and how the data are collected and reported actually understates its progressivity. For example, higher earners receive a larger share of their income in the form of municipal-bond interest, dividends and capital gains. Municipal-bond interest is not taxed at all, benefitting the municipal issuers, not the holder of the bonds. If interest from municipal bonds were taxable, their rates would be higher and taxed. After-tax income would be the same, but reported tax rates would be higher.

Similarly, dividends and capital gains are taxed at a lower rate than are salary and wages. But corporate earnings are taxed first at the corporate level and then again at the individual level. Consequently, the individual corporate shareholder pays an effective rate which is actually higher than the rate on salary and wages. Thus, the reported tax rates for high-income people are understated.

What should be done to improve our arcane, complicated and unfair tax system? First, eliminate all preferences in the tax code and, if we still want to subsidize certain behaviors, pay for them through a legislative appropriations process, making them transparent to the public.

After an appropriate phase-in, all deductions would be eliminated in return for a lower rate across the board. Compliance and reporting costs would be far lower, and I believe revenues would be higher. It would eliminate the need for individuals and corporations to spend billions trying to influence the tax code or avoiding the payment of taxes, thus contributing to savings and capital investments, spurring economic growth and creating jobs.

He’s got many of the right ideas, but unfortunately, the likelihood of any of it happening seems low given the chilly reception that the Simpson-Bowles commission’s work got.

Regardless, it’s good reading and very thoughtful proposals and I’ve highlighted probably the most important point – influencing behavior through tax-code chicanery is a terrible idea.  We have a tax code riddled with the influence of lobbyists and influence-peddlers and by doing all this through the tax code, we hide the costs, the influence, and often get a lot less of the ultimate benefits we were looking for.

Read the article, though.  It’s got some good, if improbable, stuff.

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