Arnold Kling  

The Case for Tax Reform

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Politically, of course, it's dead in the water. But Andrew Chamberlain and Patrick Fleenor show why it makes economic sense.


The current system requires six tax rates ranging from 10 percent to 35 percent to raise the $912 billion in federal individual income tax revenue expected in 2005. That amounts to an average tax rate of 19.5 percent. If all personal income were taxed instead, the same revenue could be raised with rates ranging from just 4 percent to 17 percent. That would amount to an average tax rate of just 9 percent—less than half the current effective rate.

High effective tax rates required by narrow bases hurt the nation’s economic performance and lower the standard living for all Americans. As the President’s Advisory Panel on Federal Tax Reform prepares its recommendations it should place a high priority on identifying ways to broaden the federal income tax base.


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CATEGORIES: Tax Reform



TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/393
The author at MaxSpeak, You Listen! in a related article titled CONSERVATARIAN TAX PLAN writes:
    Here you go: the problem with the tax base is we have personal exemptions and we don't tax fringe benefits, such as for health insurance; unemployment benefits; non-filers (i.e., if you make, say, $3,000 for the year); and my personal... [Tracked on November 7, 2005 12:28 PM]
COMMENTS (4 to date)
Randy writes:

I think we need to be thinking in terms of direction rather than reform. E.g., if we want less exemptions, then gradually decrease the amount allowable for each type of exemption over a decade or two. Politically all this requires is to convince the taxpayers that the end result is worth achieving. People can and will adapt if given time.

Lord writes:

Broadening the base and lowering rates makes it easier to raise them, so I am not sure narrowing the base isn't the better direction.

Glen Smith writes:

When the government starts talking about tax reform, check your wallet.

Daniel writes:

The goal is clear: reducing the tax rate.

The means are clear: taxing unemployment benefits, employer provided health care, child tax credit

Now, given there is the same amount of tax revenue at a lower tax rate and a broader tax base - who will pay more and who will pay less?

Thats right. Those who are unemployed, those who have children, those employees who benefit from employer provided health care will pay more in taxes.

You figure out, who will benefit from such an unjust tax "reform".

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