Assessing Tax Reform

By Henry J. Aaron; Harvey Galper | Go to book overview

solutions to several significant transition problems that arise from a shift to cash flow income taxation. Similar problems would attend any other comprehensive reform, and solutions would have to be devised.

A variety of transition steps can be added to any reform plan. Effective dates can be delayed. Tax changes can be phased in gradually. "Grandfathering" may sometimes be appropriate. In some cases, direct federal spending may be necessary to replace part of the benefits from existing tax concessions.3. In a few cases, it may be desirable to retain tax concessions for specific activities within a reformed framework; in chapter 4 we suggested some concessions for homeowners and for charitable giving.

In all of these cases, transition rules to soften the harshness of tax reform for those who lose tax advantages will for a time reduce some of the gains in simplification. But without such transition rules, beneficiaries of existing special provisions will be able to complain legitimately that they are being asked unfairly to undergo shock therapy so that all may enjoy a saner tax system. And the validity of that complaint would stand as a major obstacle to achievement of a consensus for tax reform.


Conclusion

These prerequisites suggest that the best hope for tax reform is early in the administration of a popular president; that is the time when he has the prestige and political standing to push a comprehensive proposal drafted in consultation with congressional leaders of both parties. The president must communicate to the public his sense that tax reform is important for the health and growth of the nation. Having hammered out a compromise with congressional leaders, the president must make clear that he will accept no major alterations and must use his powers to secure support from members of his party.

Tax reform, therefore, is a high-stakes political gamble. Its supporters must be willing to confront major economic and political interest groups, each of whom will claim that, among all tax preferences, theirs should be preserved. They must adhere to negotiated agreements enabling each to state that seemingly meritorious exceptions cannot be allowed because

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3.
For example, in "Aspartame for Comprehensive Taxation," Hartman and Lucke suggest a program of grants to people who are buying their first home.

-138-

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Assessing Tax Reform
Table of contents

Table of contents

  • Title Page iii
  • Foreword ix
  • Contents xi
  • Chapter One - Why the United States Must Reform Its Tax System 1
  • Chapter Two - Thinking About Tax Reform 16
  • Chapter Three - Rebuilding the Income Tax 48
  • Summary 65
  • Chapter Four - the Cash Flow Income Tax 66
  • Conclusion 87
  • Chapter Five - Sales Taxes 121
  • Chapter Six - Short-Run Programs for Raising Revenue 122
  • Summary 128
  • Chapter Seven - the Politics of Tax Reform 129
  • Conclusion 138
  • Index 141
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