Assessing Tax Reform

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

be less effective than the alternatives in reducing current dependence on imported petroleum.

The choice among energy taxes clearly depends on the relative importance of reducing current imports of petroleum, reducing the depletion of U.S. reserves, or overall conservation of other types of energy. But all energy taxes have important shortcomings as elements of a program of tax reform. First, they all would increase tax burdens on households regarded as too poor to pay income taxes. No roster exists of low-income taxpayers whose energy expenses would qualify them for assistance. Developing and maintaining such a roster would be costly and cumbersome. Passage of a program of low-income energy assistance that is both effective and manageable seems improbable. Second, energy taxes will boost energy prices, which in turn will lead to increased general inflation unless monetary and other economic policies prevent it by slowing overall economic activity. Thus, energy taxes are likely to increase either inflation or unemployment. Third, energy taxes, except for possibly reducing marginal tax rates, do nothing directly to correct the existing tax distortions and inequities in the personal or corporation income tax system.


Summary

The principle appeal of general sales or selective energy taxes is that they can raise a lot of revenue although, in the case of value-added taxes, not very soon. But they leave the shortcomings of the existing tax system uncorrected, and they have their own serious problems of fairness and efficiency. In short, they do nothing to improve the quality of our tax system. They can help close the deficit in the long run but only if Congress is prepared to shift tax burdens to lower income groups or to implement administratively cumbersome schemes to offset such a shift.

-121-

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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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