Tax reform momentarily enjoys a bit of airplay, so let's talk about what tax reform should look like.
We first establish a baseline of clarity: the tax burden consists solely of the total cost in time and money of paying it. Period. It is not the rate. It is not the presence or absence of a credit or deduction. These latter items influence the tax burden, but they do not define it. As a local ad humorously intones: "In business, time is money; but money is also money."
Therefore, the only way to cut taxes meaningfully is to either collect less money or allow that money to be paid more easily, perhaps by taking less time and effort to comply with with tax law.
There are very, very few politicians on the Right or Left that actually want the government to collect less revenue. Republicans like to pretend that "cutting taxes" is a magic elixir of economic growth, so they think they can have their cake and eat it too-- cut taxes without cutting revenue. But we've already established this is a fallacy because revenue is taxation. By definition, you can only cut the financial burden of taxation by reducing gov't revenue.
The difference between Republican and Democrat positions on taxation is one of means, not ends. Both parties always want Uncle Sam to be flush with cash, the better to buy votes with and show how incredibly generous they are with confiscated funds.
The goals of tax reform should be:
1) Making the tax burden far less progressive
2) Making the tax code far simpler and less costly to comply with.
Why less progressive? A progressively higher rate makes avoidance more lucrative at you go up. And of course, those at the top have money shelters and other resources less accessible to those lower down the income scale. Thus, when you try to tax the higher income earner at ever higher rates, you make it far more worthwhile for them to avoid those taxes even as they have the resources to do so. The result is that the real burden paid by the rich-- i.e., the total dollars collected from them-- goes DOWN, not up.
There is so much evidence to support this phenomenon that I won't bother recounting it all here. Suffice it to say, the it was noted as far back as the 1920s by Andrew Mellon when he complained that tax-free bonds where being used by the rich to avoid paying taxes when the income tax rate went up. (revenue went down). And of course, the UK eliminated its 50% top tax bracket when they found that the amount of money subject to that rate dried up sufficiently to cause a loss of revenue. And after the 'Bush tax cuts for the rich' were enacted, the tax burden of the top 1% went up and did so throughout his Presidency.
Search "Taxation" on the topic at right for more on this.
Reason number one, then for making the tax code less progressive is that it actually collects more revenue from the rich. Reason number two concerns incentives as well. Progressive taxation undermines the marginal utility of work. The harder a person works, the less valuable it becomes. It unduly harms the poor as well by keeping them poor.
The best example of this phenomenon is that the bottom end of the income ladder-- a welfare case. Let's say a person can collect welfare for $200 per week or he could work for $300 a week. The effective tax rate to our potential worker is actually 66%! Why? Because he must give up $200 to earn $300. The value of the job-- his net benefit-- is therefore just $100 a week. And this is less than his $200 a week from welfare. One can hardly blame him for staying home when he'd take a pay cut to go to work. And of course, the more lucrative welfare or unemployment benefits become, the more perverse the incentives become.
Make no mistake, this is a product of the progressivity alone. If the welfare benefit is only $50 and the work still $300, then his effective "tax" for giving up welfare is only 16.7% Without welfare, the "tax" of giving it up is zero.
Progressivity in our tax code encourages the rich to game the system (with resources more than able to the task) while punishing the poor and keeping them captive in the income bracket.
The other key tax reform needed is simplicity. Stop treating taxpayers differently based on what they bought or sold, saved or spent, did or didn't. Don't make someone pay more tax because they aren't disabled, or they don't have kids, or they rent an apartment instead of have a mortgage.
Level the playing field. Instead of picking winners and losers and to who will or wont' pay more tax, just level the field. The absurdity in our tax code comes not from the nominal rates, it comes form the myriad of deductions and credits that make the rates meaningless. Someone in the "15% bracket" can end up with an effective tax rate of -30%. In other words, they are net beneficiaries because the tax code is their welfare code as well.
Let taxes be taxes and welfare be welfare. Commingling them distorts the picture and prevents honest assessment. Which is likely the entire point. Our disastrous tax is not an accident or a mystery. It is a deliberate effort to punish few and reward many so a politician can buy votes.