Post-Pandemic Tax Policy

Blog Post
Wednesday, June 10, 2020

On the latest Facing the Future, I was joined by Concord Coalition Executive Director Bob Bixby, Dr. Diane Lim, director of outreach and senior advisor for the Penn Wharton Budget Model and Dr. Doug Holtz-Eakin, president of the American Action Forum and former Congressional Budget Office director. We discussed the current state of the economy amidst the COVID-19 pandemic, the potential shape of a recovery and what post-pandemic tax policy might look like.

[Note: Portions of this week's Facing the Future can be seen in the video clips posted below.]

Holtz-Eakin said the economy experienced an enormous and sudden downdraft, and it would be great to bounce right back from that. But, he said, that likely will not happen. 

“That’s not going to happen for two reasons,” he said. “Number one, we don’t have the miracle cure -- you’d have to take the virus out of the equation to even approximate that -- and number two, this economy will not look the same going forward.” 

“There’s going to be some fairly substantial shifting of employment patterns,” Holtz-Eakin added. “That generally takes time.”

He also said, with this crisis, there are special factors. We would like people to be able to work in the presence of the virus, which will take accommodations in the workplace, like utilizing PPE, testing and changes in workflow. Holtz-Eakin identified policy issues on which Congress should focus: supporting workers and firms to get back into the workplace and be productive, as well as promoting economic growth while still addressing national debt issues. 

“I would love to see us grow more rapidly,” he said. “I certainly believe we need to do better with our social welfare programs … the social safety net really is breaking, and it’s not fair to Americans to not have a sustainable social safety net.” 

“Even if we do all that to my satisfaction, we will still probably need more revenue,” Holtz-Eakin said. “‘How do you do that?' becomes the question.”

Lim said, “On a note of optimism, I think there’s both a need for and greater appetite for raising revenue as a share of GDP because of going through this pandemic.”

“The bipartisan ideas for tax reform that are going to be winning ideas that have a chance of passing are … base broadening, trying not to raise marginal tax rates,” she said. “The government subsidizes a tremendous amount of activity through the tax code … when it comes to marrying the need for greater safety net policies with the need for more revenue, it’s a perfect match.” 

Coming out of the pandemic, Lim does not think we will move completely away from our income-based tax system as the nation explores new sources of revenue, like additional consumption taxes. But she did point out that the economy was already changing pre-pandemic in terms of common types of work that are taxed.

“The tax system, in a lot of ways, wasn’t keeping up,” she said. “Now, employment can mean so many different things that are not necessarily things that appear on a W-2 form.” 

“Going forward, as we add new revenues sources, as we reform the tax system, ideally we are mindful of the changes that have already happened in the economy and try to go with the flow in terms of the tax system adapting more readily to the new economy,” Lim added. 

 

Holtz-Eakin said, “The future is, in the end, all about innovation.” 

“We don’t solve any of the major health, education, climate problems that face this nation and the globe without radical innovation,” he added. “So, you want to make sure that whatever code you adopt preserves incentives for innovation.” 

And Holtz-Eakin highlighted a going concern on tax collection: “Do you want to rely on this traditional employer-employee relationship as the collection mechanism … or do you want to have a collection system that is more based on individuals and families so that regardless of how they migrate through the economy you are still collecting that tax revenue?” Hear more on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, iTunes, Google Play Music or with an RSS feed. Follow Facing the Future on Facebook and watch videos from past episodes on The Concord Coalition YouTube channel.