Confirmation Trouble and Tax Reform

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"Confirmation Trouble and Tax Reform"

Reader W.M. says:

Here is one issue that is driving me absolutely insane, with which I think you might find common cause…

Many folks in public life have problems with two very specific things: taxes (and payment thereof) and nannies (and legal status therein). Bob Woodward even intimated himself yesterday that “this” (Geithner, Kenndey, etc) may not be “it” for tax and nanny problems for people in Obama’s circle! If there are so many otherwise accomplished, talented, high-profile, law-abiding, and sensible people that are violating laws around these two issues, DOESN’T THAT MEAN THAT THE ISSUES THEMSELVES NEED SOME REFORM? Maybe, I don’t know, a simplified tax code and a clear work permit policy?

Sure. I mean, the country was close to comprehensive immigration reform during the last congress. But conservatives in congress blew the deal up thinking they could ride anti-immigrant sentiment to victory in the elections. Instead, they lost seats across the board. But the blowup seems to have scared everyone off.

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Tax reform, meanwhile, is intrinsically difficult to point out as you can tell if you read the excellent account of the 1986 tax reform Showdown at Gucci Gulch. But in principle, tax reform aimed at simplifying the code could be hugely valuable, not just in terms of reduced complexity but in terms of stronger growth and increased revenue. And this is the good kind of “bipartisan” project to undertake—one that’s not about splitting the difference, but about putting some technical improvements to the system ahead of short-term political parry-and-jab.

Unfortunately, since 1986 we’ve seen the emergence of a newish philosophical dispute. 20 years ago, everyone agreed that “tax reform” meant broadening the tax base and lowering tax rates. Eliminating loopholes and deductions, in other words, and then having lower overall rates. Since that time plenty of new loopholes and deductions and credits have gotten in that one could take out. But conservatives have, as a matter of principle, really stopped believing in the idea of a broad tax base. Instead, they’ve taken up the idea that we should switch to a system in which only labor is taxed and wealth and investment income is, along with estates, tax free. It’s a dream of a world in which Paris Hilton never has to pay any taxes. Progressive ideas about tax reform, such as this 2005 CAP plan go in the opposite direction, arguing that income should be treated equally regardless of source.

All that said, the Geithner situation which involved working for an international agency is probably just inherently complicated since it’s just an unusual situation. About the most one can say about it is that professional economic policymakers should be up to the task of figuring this stuff out, but at the end of the day you make cabinet choices on the basis of who’ll be a good secretary—which is why the right isn’t even really trying to mount a serious anti-Geithner campaign.

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