Today, Tim Carney wrote an astute article on the struggle to enact tax reform. He referenced, among others, Matthew Yglesias‘ exceptional rant on giving Olympic medalists special tax deductions. As Carney noted, “Democrats and Republicans agree: We need ‘tax reform.’”
Yes, we all agree reform needs to happen.
But we not only disagree on how to pursue that reform, we’re kidding ourselves by thinking “if we just eliminate enough deductions,” all will be well. We must simplify the tax code by removing things that distort it. Some deductions are, yes, silly. There’s no need to give tax breaks for manufacturers of electric cars or for pet owners, etc.
To be sure, there are ridiculous exemptions that benefit a handful of influential stakeholders — and they will fight to keep them.
But not all deductions are obviously foolish and superficial. We grant deductions for a lot of things that ostensibly contribute to a better society — things we want to encourage or incentivize — things like raising children, mortgage loan interest (home ownership), and charitable contributions.
Removing these deductions might well be the right thing to do, but let’s not fool ourselves by thinking this will be easy. In fact, a schism between social conservatives and fiscal conservatives is one likely outcome.
We’ve tried this before, of course. Ronald Reagan’s sweeping tax reform in the 1980s was slowly chipped away as more and more deductions were added.
Today, we face a severe fiscal crisis — and we need tax reform badly — but it won’t be done easily.