Set Aside Debate over Romney Tax Math: Is Tax Reform a Good Idea?

Article excerpt

One of the biggest policy questions at stake in the presidential election how to fix America's dysfunctional tax system has become largely obscured by bickering over the budgetary math of one candidate's proposal.

The scrutiny of Mitt Romney's plan for a 20 percent cut in income tax rates is deserved. That's a big tax change, and he hasn't explained how he would pay for it at a time of chronic federal deficits which he also pledges to reduce.

But the legitimate questioning of Romney's math has to some extent short-circuited campaign debate over a much bigger issue: The US tax code is widely perceived as burdensome, as it imposes steep compliance costs and unduly distorts the behavior of businesses and households. Reforming it offers a promising way to improve the health of both federal budgets and the economy.

The big question is how to approach that task. Mr. Romney's plan may or may not be the right one, but his general idea lowering tax rates while limiting things like deductions in order to "broaden the base" of taxable income is viewed by many tax experts as one promising path forward.

Amid the din of dueling sound bites from the campaigns, some voices on the sidelines are warning that this bigger picture is getting lost.

"The real story should not be about one campaign nit-picking the budgetary impact of the other campaigns proposals," Alex Brill, a research fellow at the conservative American Enterprise Institute, opined in an online commentary this month. "Rather the real story should be about the substantive policy visions of each of the candidates."

Mr. Brill was aiming his comment at President Obama and his Democratic allies. Others have similar concerns about Republicans.

"Lets all take a deep breath here," Howard Gleckman, of the nonpartisan Tax Policy Center, appealed on Thursday after the Romney campaign accused the center of issuing a new analysis that was "misleading and deceitful."

In fact, Mr. Gleckman argued in a blog post, the center's latest research efforts "provide evidence that a deduction cap," an idea Romney has floated, "is a pretty good ... idea."

For the record, the Tax Policy Center and the American Enterprise Institute are themselves part of the fray over Romney's tax math. The center is funded by two left-leaning think tanks, and while it has a reputation as nonpartisan, its analyses have been used heavily by critics of the Romney plan. Brill, meanwhile, made his comments within an article that also sought to rebut those critics.

Three basic issues in tax reform

But both Brill and Gleckman are right that there's much more to debate than the details, or lack of details, in Romney's plan.

Basically, the idea of tax reform revolves around three issues: how to obtain needed revenue for the federal government, how to be fair (what level of "progressivity" to have in the tax code), and how to maximize economic growth.

Romney emphasizes the goal of restraining the amount of tax revenue the government takes, and calls for big federal spending cuts to avoid big deficits. He also says he wants the code essentially to retain its current progressive structure (with the top 5 percent of households continuing to pay a 60 percent share of income taxes). And he argues that simplifying the code, with lower rates for corporations as well as individuals, will boost economic growth.

He has brought the math debate upon himself, by announcing very ambitious goals (cutting rates by 20 percent would bring the top tax rate down from 35 percent to 28 percent) while leaving other key details unspecified.

Obama wants government to get more revenue than would occur if the Bush tax cuts all remained in place. On fairness, his stated goal is to keep taxes essentially the same for the bottom 98 percent of households, while asking the rich to pay more as their "fair share. …