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Come on, Washington, Tackle Tax Reform

David Callahan

The smart money is betting that tax reform won't happen this year, or anytime soon. Not with an election just 10 months away, and an even bigger one following close on its heels. 

That's too bad, because tax reform is one of the few issues where you could actually imagine a really interesting and useful bipartisan debate. What's more, there would be plenty of upsides to such a debate for progressives. 

On the bipartisan potential: Both progressives and conservatives hate many features of the tax code, for their own reasons. Progressives dislike how the biggest individual tax breaks -- for housing, healthcare, and pensions -- heavily favor the affluent, and how the corporate tax code is littered with giveaways to already profitable industries, like Big Oil. A growing number of progressives also dislike how we tax good activities like work and wealth creation, when we could be taxing bad activities like pollution, financial speculation, and overconsumption. Meanwhile, libertarian conservatives hate how the tax code puts government in charge of "picking winners and losers," as well as "social engineering," and dislike the overall complexity of the system. Some on the right also think we should shift what we tax, away from work and wealth. 

These areas of common interest are what could make a tax reform debate both interesting and productive. Unlike the usual political fights in Washington, this one wouldn't automatically pit left and right against each other; it would pit special interests against reformers of a variety of stripes. 

Of course, proposals for revenue positive tax reform -- or revenue negative -- would instantly dash any left-right convergence, but otherwise we could see a lot of good developments, even if reform didn't ultimately pass. Here are a few strong ideas that could gain traction:

  • A carbon tax. A number of conservatives have come out in favor of a carbon tax, historically a progressive idea, for various reasons. A tax reform debate could be a moment where a clear bipartisan push for a carbon tax emerges, solidly moving this issue into the political mainstream. 
  • Taxing consumption. The progressive economist Robert Frank has been one of the leading proponents of taxing consumption for years, and reducing overconsumption has generally been a progressive idea. But more conservatives now express favor for various proposals to tax consumption, seeing such taxes as simpler and more economically efficient than the current kinds of taxes the U.S. favors. 
  • Financial Speculation Tax. This one wouldn't get bipartisan backing, but could definitely get more attention during a tax reform debate.
  • Taxing Foreign Corporate Profits. There's been a lot of attention in the past few years to how adroit companies like Apple are at stashing profits overseas and untaxed. A tax reform debate would be a place to turn public outrage into specific changes in law -- although, again, this one wouldn't win bipartisan support. 
  • Reducing and Reslicing Big Subsidies. As mentioned, the three biggest individual tax breaks heavily favor the affluent. You could imagine bipartisan support for reducing the overall generosity of these subsidies. And you could imagine a robust debate on how to more fairly target tax expenditures for housing, health, and pensions so that all Americans could benefit -- as opposed to just people who own homes, have employer-provided health insurance, and have retirement accounts. 

Beyond all this, a big tax reform bite would be useful for other reasons, like reminding Americans of the need to limit the influence of lobbyists and special interest groups -- influence which would be dramatically showcased as one proposal after the other faced a blowtorch of focused resistance.

Come on, Washington, get this fight going.