By Robert Stein (National Affairs)
For more than two decades, free-market economists and policymakers have championed an agenda of comprehensive tax reform. Modeled on President Ronald Reagan's 1981 tax cuts, their plans have sought to combine further cuts in marginal income-tax rates with relief for corporations and investors, along with a profound simplification of the entire federal tax code. But unlike Reagan's immensely popular initiative, the reformers' campaign has gained little traction with the public — and has not been enacted even in times of Republican dominance in Washington.
At the core of this failure has been a misreading of Reagan's success. Too often, advocates of comprehensive tax reform have focused on the particular means of Reagan's plan — the lowering of marginal income-tax rates — rather than on its more general ends: correcting economic distortions caused by government policy, lightening the tax burden on American families, and encouraging more work and investment.
Lowering tax rates today could still enhance the incentives to invest, particularly in the corporate sector. But the distortions caused by marginal tax rates are not nearly as great as they were in 1980. And attempts to solve other problems caused by the tax code itself — like the biases in favor of consumption over saving, or home building over business investment — could never in themselves garner the public support necessary for a major overhaul.
Instead, tax reformers should understand that the workplace is not the only venue in which incentives matter — and that taxpayers are not simply workers, employers, and investors. Economic man is also a family man, and the next generation of tax reform should address the distortions and burdens our fiscal policy imposes on American families.
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