Former Senator Bill Bradley has an important and timely piece in the Sunday New York Times. As someone who was part of the 1986 Tax Reform Act, he has some good knowledge to share.
With seven respected committee members backing the bill, Bob Packwood cajoled, threatened and persuaded others on the committee to embrace it, outmaneuvering senators who wanted higher rates and real estate lobbyists eager to protect tax shelters. There were a few perilous moments. We came up short on revenue at one point, increasing the deficit in a supposedly revenue-neutral bill. Initially we missed our agreed income-distribution goals. But in the end, the bill passed committee 20 to 0; and then, after a big battle on I.R.A.s, it passed the Senate 97 to 3. That kind of vote really used to happen.
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The final bill chopped the top rate to 28 percent from 50 percent, closed nearly $100 billion a year in loopholes, taxed labor and capital at the same rate, and gave low-income Americans one of the biggest tax cuts of their lives. Most people got to save more of every dollar they earned, corporations were treated more equally, and the wealthy ended up paying a higher share of total income tax revenue because they’d benefited disproportionately from the loopholes we’d eliminated.
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Over the years, bill after bill has chipped away at the changes we made, and people today once again see unfairness everywhere in the code. Tax liability appears to be totally random. Loopholes cost over $1 trillion, and equal incomes don’t pay equal taxes. The question is the same as in 1986: Can our leaders put principle and country over politics and party, and work together for the common good?
Given the extreme polarization within and between the parties, the odds are against success. Legislating is a very human experience in which trust and mutual respect play critical roles. But 1986 proved that when both are present, big things can get done.
A. Barton Hinkle of the Richmond Times-Dispatch has some interesting things to say about tax cuts, he takes a swipe at the Laffer curve along the way, that mistake aside, he does make some valid points.
Most discussions of tax policy overlook a crucial initial condition: the ownership of the money before the government confiscates it. That is a moral consideration, or at least it ought to be. Pundits go on at great length debating whether the government can afford to let people keep a bit more of their own money. Very few ever ask whether the taxpayer can afford the high cost of government.
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Any discussion of tax policy ought to start with the recognition that taxation entails taking the earnings of some people for the benefit of others. We need some level of taxation; government can’t function without it. But the level should be kept as low as possible.
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This is, indeed, a question about greed. But not in the way it is normally framed. As George Mason University economics professor Donald Boudreaux once said, it’s an odd value set that considers “I want what’s mine” to be selfish and greedy but “I want what’s yours” to be selfless and noble.
Over the next two decades federal spending is set to soar from 20 percent of GDP to 28 percent, and much of that spending growth is on automatic pilot. Nobody ever asks how that spending is going to “pay for itself.” Given that taxes already cost Americans more than food, clothing, and shelter combined, maybe they should.
Larry Kudlow was a guest of John Catsimatidis on The Cat’s Rountable, here is the podcast.