July 24, 2014

Tax Reform Can Meet Multiple Goals

  • The nation's fiscal future depends on the balance between the spending in the federal budget and the revenues flowing into the treasury. Tax policy...

Could the tax code be changed in ways that could simultaneously reduce the deficit, encourage economic growth and promote fairness? Diane Lim Rogers, chief economist for The Concord Coalition, assured the Senate Budget Committee last week that these goals are not mutually exclusive.

She urged lawmakers to broaden the tax base by reducing or eliminating many so-called tax expenditures, which she described as “upside-down subsidies” that tend to favor people with higher incomes.

“I’ve recently heard the three tax reform goals in the title of this hearing – encouraging growth, reducing the deficit, and promoting fairness – referred to as a ‘fiscal trilemma,’ suggesting it might not be possible to achieve all three,” Rogers told the committee. “The good news is that it really is possible to find tax policy changes that would do well for all three goals.”

She cautioned, however, that difficult policy choices would still be required.

Rogers also challenged the idea that deficit-financed tax cuts can pay for themselves. Such cuts, she said, have generally reduced national savings and consequently can harm long-term economic growth. She suggested that Congress either let the 2001 and 2003 tax cuts expire this year or at least offset the cost of whatever cuts are extended.

Other witnesses at the hearing were Leonard E. Burman, a Syracuse University professor, and Daniel J. Mitchell, a senior fellow at the Cato Institute.

In opening the hearing, Committee Chairman Kent Conrad called the tax code “indefensible” and said he thought tax reform “has to be part of the solution to the nation’s long-term budget crisis.” Other members of the committee indicated strong interest in reducing tax expenditures.

Read more with Concord Coalition Economist Urges Congress to Reform U.S. Tax Code