Friday, June 28, 2013
No-ing thyself - Aaron Wildavsky's notion applied to Tax Reform
I mention that because about the time one of the ideas that Wildavsky was suggesting was to "No" thyself. The idea was simple - establish elements in a fiscal constitution which would prevent wild and crazy excesses. The 2/3 vote requirement in Proposition 13 is a good example of the principle.
This week the Chair and Vice Chair of the Senate Finance Committee (Max Baucus and Orrin Hatch) proposed a new twist on the idea. They sent out a dear colleague letter which suggested that they wanted to start the process of tax reform. And that rather than picking and choosing which elements should stay in the code, they would begin with the principle that everything would go out, everything! If someone could make the case for something to stay in - they would consider it - but as a starting point everything would go out and every provision in the code would have to justify its existence. If a provision cannot prove that it helps to grow the economy or make the code fairer or promotes some other important policy objective - it goes and stays out.
The code is now 74,000 pages/ 9 million words. A George Mason Mercatus Center report suggested that tax compliance costs us all about a trillion dollars each year. The complexity also loses something close to half a trillion annually in under or unreported income. So simplification would be a big boost for all of us.
If the two senators are successful they might be able to halve the top rate for personal income taxes. Most political observers have argued that the tax code is too tough to tackle because benefits are concentrated and costs are diffuse. But this approach would put everything on an equal footing. One wonders whether this is a variation on the strategy played in 1986 when the most significant tax bill of the last half century was adopted or whether this is simply a dodge. For those who care about the real costs of the current code (and I count myself in that lot) this would be a good starting point.
There are two elements which argue against 2013 being 1986. First, in 1986 you had a president who was willing to fight for the principle of simplification - against the opposition and members of his own party. He also recognized that allies can come from strange places like Oregon (Bob Packwood), New Jersey (Bill Bradley) and Chicago ward politics (Dan Rostenkowski) and even Massachusetts local politics (Tip O'Neill). Second, 1986 saw two things we may not have now - a House committed in part to significant reform (Bill Camp the chair of Ways and Means may be that person) and some public pressure for simplification.
Were all the stars to align we might have the opportunity to put together a reprise of 1986 - which brought about more revenue and significant prospects for economic growth. Most likely if this were to begin to advance it would be in an even numbered year (2014); but I would still say this bold no-ing thyself is a long shot.