Leave No Taxpayer Behind
Letter to Tom McClintock’s Republican Colleagues:
According to Arthur Laffer and Martin Feldstein, the business side of the tax reform will produce $5 trillion of growth over the next decade. MAGA! (Make America Great Again)
But we’re getting wrapped around the axle on the personal income tax side. We’ve had several unpleasant surprises this week: the 46% bubble bracket and now the JCT report that, over time, many in the middle class may end up paying higher income taxes.
Yes, the average taxpayer will pay less – but this raises the mystery of the 6-foot man who drowned in a pond whose average depth was 5-feet. It is now clear that some families will see tax increases – and more over time.
As desirable as tax simplification is, I wonder if it is simply a bridge too far given the timetable we’re on, the political environment we’re in and the complexities of the tax code that are certain to continue to yield unpleasant and unintended consequences.
I urge us to consider leaving the personal income tax structure intact, but using the budget authority instead to provide a permanent uniform across-the-board reduction in the rates for ALL tax brackets. Our back-of-the-envelope estimate is that using the current framework, we can reduce tax brackets by a full one percent, averaging a $600 tax savings for joint filers. (By including repeal of the individual mandate, we can reduce all tax brackets by 1.35 percent, averaging about $800 for joint filers.)
The advantages:
- It leaves no taxpayer behind. Whatever your circumstances, you can be sure your overall tax bill will go down.
- By reducing ALL marginal rates, it will increase the economic growth potential of the reform. Productivity depends on how much your NEXT dollar is taxed.
- It can be easily communicated without the need for retro-active applicability.
- It will remove a vast proportion of opposition we’re seeing among various business groups that imperils the entire bill.
