Sunday, December 02, 2012

Tax Policy Center: Hey, how about some regressive tax reform?

The Tax Policy Center, a think-tank dedicated to tax issues, is linked to the center-left Brookings Institution.  One of its noteworthy accomplishments from the election season came when it criticized Republican presidential nominee Mitt Romney's tax plan, saying that it would require raising taxes on the middle class.

The news media and the Obama campaign used that talking point mercilessly against Romney.

Now, the Tax Policy Center comes forward with its own tax reform plan.  At first blush, the plan calls for raising revenue and boosting the economy with regressive taxation.

At least that's my initial take.  Here's how the authors introduce their plan:
This paper examines the fiscal outlook and tax reform options in the United States.  The major conclusions include:  the United States faces a substantial fiscal shortfall in the medium- and long-term; both spending cuts and tax increases should contribute to the solution; tax increases need not do significant harm to economic growth; and there are sensible ways to both reform tax structure and raise revenues, including tax expenditure reform, the creation of a value-added tax, the creation of a carbon tax, or an increase in the gasoline tax.
The latter three all appear regressive on the face of it.  I'm not yet clear on what the authors mean by "tax expenditure reform."

It strikes me as a tad ironic that the Tax Policy Center plays a key role in producing one of the election's most notable anti-Romney talking points, a talking point that emphasizes Romney's supposed willingness to raise taxes on the middle class, and then publishes a study that apparently recommends tax reform that deliberately broadens the tax base to include the middle class and perhaps the lower class as well.

Note (after further reading of the tax proposal):

The paper eventually explains "tax expenditure" in a way that makes it resemble the reform of tax deductions Romney described during the campaign.  The authors' recommendation for a value-added tax includes the suggestion of a cash payment to all households to cancel the effect of the tax on necessities--strongly reminiscent of the tax "prebate" featured in the Fair Tax proposal.   Bottom line:  This tax reform plan will result in higher taxes on the middle class.

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