Remove the Return

The Volcker task force on tax reform, part of the President’s Economic Recovery Advisory Board, faces a daunting task that is made materially more difficult by ex ante constraints placed on its purview and recommendations. Broad-based reform proposals seem to be out of the question, and distributional constraints appear to eliminate many serious ideas. Nevertheless, I believe that significant tax simplification is feasible despite the task force’s constraints, and I will take it as a given that simplification is desirable. Simplification efforts are never easy, of course. Although almost everyone agrees that the overall tax system is too complex, every year taxes become even more complicated. Why is that? We all know the reasons. Simplicity often conflicts with other tax policy goals, like equity and enforcement. People often don’t mind complexity that reduces their taxes; indeed, many groups lobby for specific provisions that provide targeted benefits. There is a vicious cycle in which targeted subsidies for one group create demand for additional targeted subsidies by other groups. Complexity is hard to measure and so is often ignored in the political process. Simplification, in short, tends to get sacrificed for other policy goals; it is always a bridesmaid, never a bride. That fact, however, could turn the task force’s limited focus into an advantage for simplification efforts because more ambitious reforms are off the table. Here are five thoughts on simplifying the tax system. First, the goal should not be to just simplify the tax system; it should be to simplify citizens’ interactions with government. Converting all deductions, credits, etc., to government spending programs would simplify ‘‘taxes’’ greatly, but would greatly William G. Gale is the Arjay and Frances Fearing Miller Chair in Federal Economic Policy at the Brookings Institution and codirector of the Urban-Brookings Tax Policy Center. Copyright 2009 William G. Gale. All rights reserved.