Saturday, March 28, 2009

What? Another Tax Reform Commission?

How many tax reform commissions could reform taxes if a tax reform commission could reform taxes?

On January 7, 2005, President Bush established a bipartisan Advisory Panel on Federal Tax Reform. The panel, chaired by former Senators Connie Mack III and John Breaux, produced a 280 page report with several excellent ideas for simplification and reform. On November 1, 2005, they presented it to then Treasury Secretary John Snow, who promptly threw it in the wastebasket.

Previous blue ribbon commissions have fared little better. The work of their members is praised but disregarded by the president, the Congress, or both.

On March 25, 2009, President Obama asked Paul Volcker to head up yet another tax code overhaul review. Its members include Harvard’s Martin Feldstein, Berekeley’s Laura D’Andrea Tyson, Chicago’s Austan Goolsbee, and several other prominent individuals. They will doubtless make a sincere effort to recommend measures to overhaul the tax code. As in past reviews, their report will die in the executive branch or Congress, save for those measures that raise more revenue without too much political flak.

My suggestion in one sentence: Propose that every amendment enacted since January 1, 1987, be repealed and that the federal income tax be restored to the law extant on December 31, 1986, that is, the text of President Reagan’s Tax Reform Act of 1986. The total number of pages of federal tax rules (the tax code, regulations, and various IRS rulings) published in various annual issues of the Commerce Clearing House guide to the federal income tax has grown from 26,300 in 1984 to 54,846 in 2003 to surpass 70,000 in 2008. Restoring the code to 1986 would cut complexity by more than three-fifths and reduce the top marginal rate to 28%.

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