The Real and the Unreal

Now that President Trump has told us his ideas on tax reform we’re being inundated with a heated discussion in various states of dissociative fugue of what constitutes real tax reform. I won’t try to tell you what real tax reform is or is not but I can offer some thoughts on what prudent tax reform would look like.

Prudent tax reform would

• Be more efficient than the present system
• Be simpler than the present system
• Make the U. S. tax system more like those of other OECD countries
• Be no more regressive than the present system

The corporate income tax is the least efficient of our taxes. It should be eliminated or reduced. At the very least our corporate income tax marginal rates should be brought into line with those of other OECD countires.

Politics being what it is over time the tax system becomes increasingly complicated. We’re between ten and twenty years overdue for a major rewrite of the tax code.

The truly prudent thing to do, incorporating efficiency, simplicity, and making our tax system more competitive with other OECD countries would be to eliminate the income tax entirely and impose a VAT, preferably one that includes a prebate to reduce its regressivity.

When they controlled the Congress, the Democrats inexplicably chose to make our overall tax system more regressive. It’s time to reverse that but we can’t accomplish that without bringing payroll taxes and substantial Social Security and Medicare reform into the discussion.

And that’s why tax reform is hard.