October 31, 2014

Critical Reform: Broadening the Tax Base

  • 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...

Cutting back on special tax breaks and broadening the tax base could help reduce federal borrowing, boost the economy and simplify the tax system. So it is important that this fundamental principle of tax reform not be discredited simply because of political disagreements over the way in which Mitt Romney has approached it.

“Both the President’s fiscal commission (Bowles-Simpson) and the Bipartisan Policy Center’s task force (Domenici-Rivlin) showed that we can broaden the tax base, lower tax rates, and raise revenue — and yet still maintain or improve the progressivity of the overall tax system,” says Diane Lim Rogers, The Concord Coalition’s chief economist.

The political rhetoric over the Republican presidential candidate’s tax plan heated up recently after the Tax Policy Center (TPC) released an analysis of it.

Romney’s proposed tax cuts are skewed heavily towards upper-income households, and he also opposes increasing the taxation of capital income. Given that, Rogers explains, the TPC analysis shows that paying for his proposed tax cuts through other base-broadening efforts would mean higher net tax burdens for most Americans.

“The Romney proposal will strike many as a bad idea, but it should not be taken as a blanket indictment of any kind of tax reform proposal that tries to pay for low (or even lower) marginal tax rates by broadening the tax base,” Rogers writes. The plan, she notes, “could be modified fairly easily to come up with a revenue-neutral but much more progressive tax reform package.”

She also faults the President’s campaign, however, for criticizing the Romney plan in a way that could promote doubts about the wisdom of broadening the tax base or the general principle of offsetting tax cuts.