USA Today on Tax Reform

On the topic of tax reform, I wrote the “opposing view” column yesterday for USA Today. But rather than oppose the newspaper’s editors, I agree with most of their views.

The editors said:

The federal tax code is an unholy mess. It consumes 6 billion hours of Americans’ time each year. It coddles politically entrenched industries. And it burdens America's blue-chip corporations in their bid to compete with overseas rivals.”

“Some taxes should be cut. The corporate income tax of 35%, for instance, should be set at 20% or lower, with a lot fewer loopholes. The current rate gives an advantage to companies not headquartered in the United States. And its complexity encourages all manner of tax gamesmanship.

Exactly!

The editors continued:

At the same time, everyday Americans need to confront the fact that their rates are far higher than they need be thanks to massive—and highly popular—deductions for such expenditures as mortgage interest, health care, charitable gifts and state and local taxes.

Of these, only the charitable gifts break has a strong case for being left alone. The tax-free status of health plans needs a limit. The deductions for mortgage interest and state and local taxes should be gradually phased out or capped, as they have perverse effects.

I agree with that too. Leave the charity deduction alone, cut or eliminate the mortgage interest and state and local tax deductions, and cap the health insurance exclusion.

My article said that if Republicans cannot agree on substantial offsets to rate reductions, “they should scale back their tax package to just the most pro-growth elements, particularly a corporate tax rate cut.” If the GOP focuses on growth-generating reforms, the deficit may increase in the short term, but the tax base would expand over time offsetting the initial budgetary effect.

The important thing is that America’s businesses and their workers desperately need a more competitive tax code. The Republicans have a rare chance right now to get it done.