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Blog: Let's Look at Tax Reform

Oct 07, 2010 | By Casey Schoeneberger

Ben Franklin may have been right when he said that “…nothing is certain but death and taxes,” but America is not so confident when it comes to reforming the tax code. With so much uncertainty,  I appreciated yesterday’s blunt discussion on tax reform with a host of experts from around D.C. I especially valued the input from Bill Gale, a Senior Fellow at the Brookings Institution and Co-Director of Urban-Brookings Tax Policy Center, who bluntly pointed out where federal funds are spent. Seventy percent of all federal spending goes to:

  • Defense
  • Medicare
  • Medicaid
  • Social Security
  • Net Interest on National  Debt

The most refreshing thing I heard from Mr. Gale was that even if you eliminated the National Parks, the Department of Education or an assortment of other programs—just eliminate them—it still wouldn’t make a dent in federal spending. And yet we continue to have so many officials saying we have to cut or trim so many programs that have nothing to do with such a large portion of the federal budget.

As Mr. Gale explained, there are two reasons we have taxes—to finance government spending and to correct externalities in the market. Externalities include those from the traditional energy market, energy that is often cheap and dirty. One woman in the audience posed the question, “So why don’t we raise taxes on dirty energy? Maybe the market would adjust itself so alternative energy became more attractive” The answer is that yes, that is a great idea! BUT, it wouldn’t be the politically expedient thing to do. This is a frustrating answer. I care little about what is politically expedient, but I do care about encouraging smart ideas that make America a safer and cleaner place to live.

Senator Wyden (D-OR) presented “The Bipartisan Tax Fairness and Simplification ACT OF 2010,” sponsored by Senator Judd Gregg (R-NH) and himself. The goal of this bill is to simplify the tax system by reducing the number of tax brackets and by reducing the corporate tax rate from a maximum of 35% to a flat rate of 24%. The Wyden-Gregg Tax reform bill appears to have bipartisan support politically as well as within tax advocacy circles. It remains to be seen if cutting corporate taxes can truly keep companies investing in America or if we need to do the impossible and create corporate taxes that are revenue-producing instead of revenue neutral.

Taxes are not a flashy topic. You don’t see many celebrities testifying about  tax reform on Capitol Hill, besides the occasional shout-out from Warren Buffet and Bill Gates. But beyond that, tax reform is not a hot topic at the weekly cocktail hour (except maybe in Washington).

Taxes, however, are how we as a country decide what is just and fair. Taxes are how we bow to special interests or stand up for those who cannot provide for themselves. Taxes are how we make energy cost what energy truly costs and how we protect our vital resources. Taxes are how we decide to treat the growing, pervasive problem of economic inequality in the United States. You get the idea. Now, let’s get to work.