The primary purpose of taxes

One of the tax sites that I have recently discovered is one called Mauledagain On Friday the author, who is a professor of law at Villanova published a critique of a Heritage Foundation Study on Taxes. The author argued that the primary responsibility of tax policy/taxes was to promote economic growth. At Mauledagain, which by the way has an interesting mix of commentary on a range of issues including tax, the author comments - (from Tax 101) - "the primary goal of tax policy should be the collection of revenue sufficient for government to perform the services that only government can perform for its citizens, such as national defense, or to perform services most efficiently handled by government, such as national disease monitoring and quarantine implementation." That indeed is correct. But it is almost impossible to devise a tax system that does not do other things. Maule makes a case against doing things with an eye on economic growth. While I thought the Heritage analysis was a bit off base, I think Maule's is also.

Take for example the Alternative Minimum Tax. Clearly this little item in the code was not designed to accomplish Professor Maule's policy guideline and yet it also has some troubling effects on economic growth. Thus, while it is wonderful to be simple about tax policy - it is often not possible. It is clear that some tax policies encourage growth AND collect enough taxes to assure that essential functions are accomplished and others do not encourage growth AND collect an increasing share of the national product and thus encourage expansionist ideas of what fits into the realm of "the services that only government can perform." In my view, that is a tax system that follows at least the broad outlines of what the Heritage scholar suggests - lower rates and relatively few provisions designed to encourage economic behavior. I am not sure than what the beef is about. If indeed Professor Maule is concerned about the very narrow purposes of a tax system that he described on February 10 - then while both the Heritage scholar and the professor would reject provisions in the code that encourage a specific behavior it seems that they should both be supportive of policies that make the tax system have generally lower rates and fewer special little things designed to make a wonk happy - either from the left or the right.

It is indeed unfortunate that the President has chosen at this point to jettison the work of his tax panel. They made some interesting choices, which I believe would have been modified in the ebb and flow of the legislative process, but which were fundamentally sound - by reigning in some things like overly generous housing deductions to help pay for the elimination of the AMT (Alternative Minimum Tax). Not everything in the tax panel's report is something worth adopting but there was so much good stuff in the report it is a shame that the Bush people did not at least take up the cudgel a bit. In Allan Murray and Jeff Birnbaum's excellent history of the 1986 Tax Reform Act - Showdown at Gucci Gulchthe key point seems to have been the direct involvement of a few key leaders in assuring the passage of what was to that date the key tax reform in the last several decades. Without some involvement of Bush and some leaders in Congress, the good ideas will not get heard.