Should Tax Reform 'Go Long'?

Go long or go prudent? These are the competing views of tax reform, according to Howard Gleckman in a Tax Policy Center blog post. He sums up the views as follows:

The go-long theory, favored by House Ways & Means Committee Chairman Dave Camp (R-MI) and others, works like this: The way to break the logjam over reform is to propose an aggressive, attention-getting, block-buster rate cut. And you finance this ambitious goal by going after everybody’s tax preferences, not picking and choosing among the oxen to be gored.

Such a strategy serves two purposes, they say.  First, a big rate reduction—say, bringing the top corporate and individual rates down to 25 percent from today’s 35 percent—would generate the sort of popular enthusiasm that a more modest effort cannot. Who, the Camp camp asks, is going to get excited about knocking the top rates down from 35 percent to, say, 32 percent? It’s a yawner, they argue.

The second benefit to this strategy, supporters say, is that it forces all special interests to take a haircut on their existing tax preferences.  There will still be winners and losers, for sure, but because nobody would avoid losing some targeted tax breaks, it would be tougher for lobbyists to protect their clients....

Of course, the go-prudent camp has different view:  It is naïve, at best, to think that a full rewrite of the Revenue Code is possible in the current political environment.  It would, they say, be something of a miracle if Congress can agree to any reform at all, much less mega-reform.

This view says take reform one step at a time. President Obama, for instance, has said that Congress should tackle corporate reform first. The more controversial individual provisions could be addressed later.

The cynics in the cautious camp have yet another argument. They say the go-long strategy is nothing more than justification for locking in big rate cuts that are both inappropriate and unsustainable in the current fiscal environment.

Put us in the "go long" camp (along with "go big" and "go smart"), but not at the expense of losing revenue. Comprehensive tax reform has the potential to both reduce tax rates and reduce deficits in a way that is more economically efficient and perhaps politically feasible than the prudent approach.

Of course, the prudent approach would still be far better than no reform at all. And tax reform focused only on making revenue neutral changes would be a waste of Congress's valuable time, which should be spent on crafting a comprehensive package that stabilizes the debt by looking at all areas of government.

We hope that the fiscal cliff at years end will provide the motivation to not only reform the tax code and generate new revenue, but also reduce low-priority spending and bring entitlement spending under control.

Policymakers should go big, and they should certainly go long.