As part of any deal on the 'fiscal cliff,' Congress will likely take up comprehensive tax reform. That's a worthy goal, but it will involve more political and economic pain than most would like to admit. Every line in the tax code has its own constituency and rationale.
Pablo Martinez Monsivais/AP
As part of any “fiscal cliff” bargain, Congress will probably take up comprehensive tax reform next year. At first, its benefits seem almost magical. Just scrap the loopholes that benefit special interests, and – presto! – we can ease burdens on the middle class, toss out tons of paperwork, and raise revenue for the government.
Alas, Congress isn’t Hogwarts, and tax legislation isn’t sorcery. Reform is a worthy goal, but it will involve more political and economic pain than lawmakers would like to admit.
A misunderstanding tends to warp discussions of the federal tax code. Because of billionaire Warren Buffett’s claim that he pays a lower tax rate than his secretary, many people think that the rich pay little tax and that working people carry the lion’s share of the load. Wrong.
According to the nonpartisan Congressional Budget Office, the top one-fifth of households contributed about two-thirds of total federal taxes in 2009, the latest year for which data are available. This group paid an effective rate of 23.2 percent, while lower-income groups paid progressively lower rates, down to just one percent for the bottom one-fifth.
Some argue that, as a matter of fairness, we should make the affluent pay an even higher rate than they already do. Fine, but we can’t squeeze them for enough additional revenue to balance the budget.
That’s where “loopholes” come in. By ending a number of deductions or credits, Congress would enable the government to collect more money, at least in principle. There’s just one problem: Every line in the tax code has its own constituency and rationale.
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