Two Good New Books on Tax Reform

By :: March 6th, 2012

If you are interested in a serious but accessible look at my favorite topic—tax reform—check out two new books. One, The Benefit and the Burden  Tax Reform: Why We Need It and What It Will Take by Bruce Bartlett, focuses on individual reform. The second, Corporate Tax Reform: Taxing Profits in the 21st Century by Martin A. Sullivan, aims at…well, you’ve probably guessed by now.

Bruce’s contribution, a full–throated call for reform, has gotten a surprising amount of attention for a tax book. Even Jon Stewart had Bruce on the other night. And the notice is well-deserved. He’s written a clear, well-reasoned brief for reform.

A prolific writer who has worked for several Republican members of Congress (including Ron Paul back in the day) and in the administrations of presidents Reagan and George H.W. Bush, Bruce makes no secret of his goal. He wants to convince you that the tax code is a mess and needs a major overhaul. As he memorably puts it, the code is a garden that hasn’t been weeded since 1986.  It is an apt image.

Bruce has made something of a second career expressing his, let us say, disappointment in the Republican Party where he made a home for so long.  And The Benefit and the Burden mercilessly skewers some loopy ideas now floating around the party such as the Fair Tax (which he calls “completely unworkable”) and the theory that lowering taxes will cut the size of  government—a claim that, while entirely discredited, won’t go away.

In the end, Bruce makes a case for phasing in a well-designed Value-Added Tax, both to help reduce the deficit and in the name of economic efficiency.

The Benefit and the Burden tackles the often-daunting topic of tax reform with short chapters, lots of suggested readings, (and-- full disclosure--kind words for the Tax Policy Center). If I have a quibble, it is that while the book is aimed at general readers, it sometimes assumes a level of knowledge about economics and taxes that most Americans don’t have.

Marty Sullivan—an economist and long-time columnist and blogger for the highly-respected journals published by Tax Analysts, has written a different kind of book. Marty focuses exclusively on the corporate tax and, in about 150 pages, tells you everything you’d want to know about how we tax these firms, why we should do better, and how hard it will be to accomplish that goal.

Marty supports reform, but his book plays it straight down the middle. For a lay reader, corporate taxation can be pretty overwhelming stuff, but Marty is a terrific writer and makes the story as accessible as possible. And unlike many books on the subject, Corporate Tax Reform doesn’t ignore the often-ugly politics behind the tax laws

While politicians deal in cheap rhetoric about cutting corporate rates and closing business “loopholes” without ever identifying which tax breaks they’d kill, Marty doesn’t flinch. Corporate Tax Reform offers a clear-eyed look at many of those preferences and the price of ditching them.

These two books are important additions to the libraries of readers who want to learn more about how the tax system really works, and explore ways to fix it.

4Comments

  1. Michael Bindner  ::  2:29 pm on March 6th, 2012:

    Thanks for not giving away the ending, although recent polls makes that ending far-fetched in the immediate future.

  2. Michael Bindner  ::  2:30 pm on March 6th, 2012:

    Here is my review from Amazon, which was requested.

    In The Benefit and the Burden, Bruce Bartlett takes the reader on a journey from the basics of tax policy to the prospects for the future of tax reform, all from an insider’s perspective reflecting his experience as a congressional staffer, as Deputy Assistant Secretary of the Treasury for Economic Policy and as one of our nation’s most respected tax policy journalists. This book is useful to anyone who wants to understand tax policy and reform, from the interested citizen to congressional and administration staff to the journalist who needs to understand the issues quickly.
    Part One begins with a brief history of the income tax, starting with the Tariff and proceeding to the passage of the 16th Amendment, the New Deal, the Kennedy and Reagan cuts and current day. Bartlett then outlines the players in making tax policy and why the declining role of the Treasury Department in the process is a bad thing (with lobbyists picking up the slack). Next, he delves into the question of how the tax code does (and mostly fails to) define income adequately in the tax code, which impacts how we calculate how income tax burdens are distributed and how this relates to tax reform. As important as the definition of income is the question of tax rates and their distribution and the impact of this on the economy. Bartlett then addresses the interaction between tax rates and revenue estimating, which is vital in tax reform – especially because it effects how tax policy changes, particularly cuts – are “scored” and whether Reagan’s cuts ever paid for themselves. (They didn’t). As bad as Reagan’s cuts were on revenue, George W. Bush’s were worse. From there, Bartlett discusses the impact of taxes on long term economic growth in terms of investment, savings, capital flows, capital gains, and research & development – and why temporary tax cuts can’t have the desired effect. He then discusses how investment tax credits and rebates are used in short term situations to stimulate the economy. (They don’t) and whether a financial transactions tax would slow the churn in the business cycle without preventing growth (it wouldn’t), as well as the impact of certain tax bases on revenue volatility (why capital gains taxes overstate booms and busts if relied on). Finally, Bartlett compares American rates to other industrialized nations and addresses how other countries tax capital, wealth, environmental harm and overseas income.
    Part Two discusses the problems with the tax code, particularly tax expenditures and how these form a separate social welfare system. Bartlett digs deeper into how the tax system impacts health care and causes excess consumption and offers some proposals to decrease this. He then shows how tax policy overly favors home ownership using the mortgage interest deduction, the property tax deduction and the capital gains exclusion. The impact of federal tax policy on states, particularly states with income taxes, is explained in terms of state spending – although the growth of the Alternative Minimum Tax claws some of this back – and investment in municipal bonds, although all is not good when states engage in fiscal conformity, since when the federal government falls the states fall harder. Like states, charities use federal tax policy as a piggy bank, which skews the charitable world toward the priorities of the rich – particularly in the funding of think tanks. Bartlett offers some alternatives that would fix these problems. How capital gains are taxed is then discussed – whether they should be taxed at normal income or at all – and how this might be reformed. This discussion is particularly timely, given the discussion of how Mitt Romney gets his money. The question of capital gains taxes leads to the question of tax progressivity – which occurs to some extent even if rates are flat but lower income payers are given exclusions and credits – whether tax rates on the wealthy are a good idea and how this impacts both income volatility and eventually taxes on the middle class. Taxing what the rich own – corporations – comes next, including how this impacts executive pay, the question of double taxation of profits, the treatment of depreciation and the question of where corporations locate for tax purposes and how this impacts revenue. Finally, tax administration issues are addressed, especially the question of the “tax gap” and how both complexity and IRS funding impact compliance.
    Part Three is where things get even more interesting as the question of tax reform is examined. Here, Bartlett starts with a history of tax reform (and tax cuts) from an insider’s perspective and the question of the Flat Tax. He then outlines the pros and cons of various tax reform options, including the flat tax, the FairTax and other proposals that have been made over the years. He then begins to make the case for tax reform by highlighting the need for revenue to cover looming mandatory spending requirements as the Baby Boom retires and why we can’t simply borrow our way through it, inflate our way out of it or cut spending enough to avoid raising taxes, even while conservatives reject revenue increases despite public support for such measures.
    Bartlett then makes the case for a Value-Added Tax, addressing the issues of deadweight cost, the history of the tax, its politics and its potential to raise revenue more cheaply. He then looks at and demolishes the objections to the VAT, including the canard that the 16th Amendment must be repealed first (it doesn’t), that the VAT is a hidden tax (it need not be, that its too complicated (all taxes are complicated and this is mostly because people seek loopholes), that it is inflationary (it isn’t, although it does raise the price level one time), that it is a money machine (which is kind of the point, although the data from other countries don’t really show this to be the case), and that its regressive (because it makes everyone pay something – which conservatives should like – although over a lifetime a VAT is more proportional than regressive).
    The Bush Tax Cuts come under Bartlett’s microscope next, from its origins in a campaign promise to its impact on destroying the budget surplus (as designed), to its economic effects (or lack thereof to produce growth) and how most economists consider the cuts a failure in terms of economic policy. He then examines the prospects for reform in the current climate and the impact of Grover Norquist on the debate in terms of opposition to a VAT, adherence to the failed Starve the Beast theory and Norquist’s enforced fealty to tax cuts over all.
    Bartlett concludes with an examination of the prospects for reform. I won’t spoil the ending for you, but given how he lays out his argument, I must agree with him, although I can envision one scenario where reform might come more quickly than we expect. You should buy the book to see how this all might end.

  3. Around The Dial – March 9, 2012 | South By North Strategies, Ltd.  ::  3:04 pm on March 9th, 2012:

    […] TaxVox reviews new books on tax policy! […]

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