Here’s a very good new video from the Chairman of the House Budget Committee, in which he explains why lower tax rates and fewer loopholes are the keys to a simple, fair, and competitive tax system.
Very well done. Given my video on the flat tax, as well as my video on the global flat tax revolution, you probably are not surprised by my reaction to Congressman Ryan’s contribution.
But I’m a glass-half-empty skeptic and pessimist, particularly when dealing with Republicans, so here are a few additional thoughts.
1.Why not take the logic of this video to its sensible conclusion and come out in favor of a flat tax? Yes, a half loaf is better than no loaf, but the special-interest groups and class-warfare crowd will fight just as hard against partial tax reform and they will against full tax reform, so why not go for the Full Monty?
2. I would feel much happier if people who talk about getting rid of loopholes (including Ryan) made clear that every single penny of revenue generated by eliminating tax preferences was used to finance lower tax rates. If tax reform ever becomes a vehicle for higher taxes, the exercise will either blow up or become a scam to rip off the American people.
3. There was no discussion of double taxation. Since every economic theory, even socialism and Marxism, acknowledges that saving and investment are vital for long-run economic growth, higher wages, and better living standards, this is an unfortunate omission. Given that a single dollar of income can be hit by several layers of tax – capital gains tax, corporate income tax, double tax on dividends, and death tax, this is not a trivial concern.
4. Congressman Ryan has been sympathetic to a value-added tax. Indeed, his “Roadmap Plan” includes a VAT. As I’ve explained many times before, a VAT would be fiscal poison for America. If tax reform ever becomes a vehicle for a VAT, the exercise will either blow up or become a scam to rip off the American people.
The concerns I just outlined are not a knock on the video, which obviously was designed to highlight a couple of key principles.
But I am saying that good tax policy involves more than what Congressman Ryan outlined. Lower rates and fewer loopholes are necessary conditions for better tax policy, but there are other pieces of the puzzle that can’t be ignored.
