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Tax Reform
Heading Off a Cliff?

The coming tax cuts cannot possibly be the great and simplifying tax reform that the President and Big Six claim, and that our nation so badly needs.

Appeared in: Volume 13, Number 3 | Published on: October 25, 2017
Michael J. Graetz is professor of law at Columbia Law School and professor emeritus at Yale Law School. He served as a top tax policy official in the George H.W. Bush Administration. This article is derived from the author’s keynote lecture to the Section of Taxation and Section of Real Property and Trusts and Estates of the American Bar Association in Austin, Texas, on September 16, 2017.
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  • AnonymoussSoldier

    You know, there was a time (1789-1913 and actually for a while longer) that tariffs and trade surpluses largely funded the govt. Too bad thats no longer the case between govt largess and excess, as well as corporate capture and corruption, post 1945, in particular.

    • Unelected Leader

      Yeah, the last little bit there about corporate capture and corruption. That is precisely why the system didn’t revert back to what works better [for the national interest] post USSR collapse/post Cold War. The gambit worked well enough 1945-1975 as a bribe to friend and former foe to fight the Cold War, but started to go downhill in the mid-70s. Germany, Japan, France, UK were all rebuilt by that time. But the Cold War was still happening. Of course many states, most notably India and china, were not really on the market throughout much of that time anyway.

      The tax cuts and simplification of code make perfect sense if theyre part of a rebalance to aggressively cut massive, consistent trade deficits. Simply cutting taxes, however, without addressing spending and trade deficits would be the height of stupidity and truly voodoo economics. We are no stranger in the United States to voodoo economics these past several decades.

  • Psalms13626

    What has become crystal clear, at least to me, is that the current make-up of the Senate will simply not allow any meaningful legislature to be passed. In 2018, we get to see what the voters want.

    • R Alan Rhoads

      Except the vast vast majority of voters are tax code illiterates and financial fools who only listen to what others tell them about what is occurring. Leadership counts and it is lacking in this administration & Senate.

  • FriendlyGoat

    Next week, or whenever they finally release details, we will get to see the extent of the intended hoodoo. By all indications so far, it is to be the biggest attempted coup for the dynasty class in the lifetimes of anyone now living.

    • Tom

      Yes. Doubling the standard deduction and cutting the top taxation rate by one-tenth is an “attempted coup for the dynasty class.”
      That’s…special.

      • Psalms13626

        Now entertain a truly horrifying thought of Comrade FG actually having power over other people. This would be hell on earth.

  • Jeff77450

    Mr. Graetz, good article that has helped to “clear the fog” on this issue, for me at least. Good for Bob Corker for his stand. I hope that he sticks to it.

    I’m not an economist or a policy-wonk and I have nothing original or profound to add. I think we can all agree that tax-reform is needed. I’d like to see at least one dollar in reduced spending, two would be even better, for every dollar in reduced taxes but I have no illusions about that happening.

    I would like to see estate & gift taxes repealed. Income should be taxed once, at most, and after that we should be free to do with it as we please. What most redistributionists don’t seem to understand is that the wealth of the rich is already circulating in the economy in one form or another. What’s the government going to do with it? Conduct another study of Chinese prostitutes or shrimp-on-a-treadmill? Create more perverse-incentives for dysfunctional behaviors that perpetuate poverty? More subsidies for the sugar industry? Why?

    Here’s a crazy idea: you keep what you earn or otherwise lawfully acquire and let me keep what I earn. I do not begrudge Bill, Warren or Mark their wealth. If they had never created that wealth to begin with how would we be better off? With a couple of obvious exceptions like inheritance anything that I can’t work for and earn for my myself I don’t want.

  • wri

    Graetz is an expert and he makes a good case why our income tax system is so beholden to political special interests that it cannot operate fairly and efficiently. But I am skeptical about the value-added tax. It purports to allocate taxes all along the chain of production, but it seems obvious that as a practical matter these get passed on by each tax payer so as a result the accumulated taxes are telescoped into the price paid by the final consumer. That makes the tax extremely regressive even though presented as fair. It is also a “hidden” tax that is politically easy to increase, perhaps because all those with political power to influence government are aware that it is really a tax on the ultimate consumer. The history of increases in the value-added taxes in the OECD tends to confirm this. As a consequence, it is a very useful tax for those who wish to increase the size and power of the federal government.

  • R Alan Rhoads

    We remain insane in our tax code. Excellent article…i just started reading A Fine Mess by T.R. Reid. Fascinating look at the insanity of our congress & tax code complexity and hypocrisy.

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