WASHINGTON, D.C. – Tax Analysts, a nonpartisan, nonprofit organization that provides tax news and analyses, held a conference today at the National Press Club at which an esteemed panel of tax experts discussed the future of the federal income tax, which marks its 100th anniversary this year.
The panel discussion, which Tax Analysts President and Publisher Christopher E. Bergin moderated, included presentations by Joseph J. Thorndike, director of the Tax History Project and contributing editor at Tax Analysts; Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities; Robert Goulder, editor in chief of Tax Analysts’ international publications; and Michael J. Graetz, professor of tax law at Columbia Law School.
In their presentations and in the subsequent discussion with the audience, the speakers focused on whether the federal income tax can, and should, retain its role as a prime federal revenue source, and what, if any, reforms could improve the current system.
“Income taxes have at least two characteristics that I find very compelling,” said Bergin. “They can be progressive, and they can be transparent. As I watch our income tax become less progressive and transparent, however, I’m beginning to worry that policymakers simply can’t fix it. Our income tax is now a bewildering maze of winners and losers. We all know that it isn’t fair – and that’s not good for a system that relies largely on self-assessment.”
“Why has the income tax survived a century despite the fact that it is universally disliked?” asked Thorndike. “It survived because it does two things well – it raises money efficiently and in large quantities. Despite growing concerns about the fairness of the current system, it will continue to survive as a key revenue source for the federal government.”
“When the income tax was first introduced, it wasn’t intended to be a major revenue source or serve as the workhouse of the U.S. tax system, which it is now,” noted Graetz. “When we think about reforming the current tax code, which everyone agrees is broken, we must think about a system that can not only generate an adequate amount of revenue, but also be fair, conducive to economic growth, and work within our existing international trade agreements.”
By contrast, Goulder noted: “The income tax itself is a good tax politically, but it makes for bad economics. In today’s global economy, where the tax base is narrowing and capital is increasingly mobile, the competition for lower rates is a huge factor. As a result, more countries are reducing their reliance on income tax as a revenue tool and looking for alternate revenue sources. We need this alternate revenue, whether it is a VAT or a carbon tax, to relieve the pressure on the current income tax.”
“We have an enduring system of revenue collection with an infrastructure that is widely accepted and functional,” noted Bernstein. “However, the legitimacy of the current system is becoming more fragile as politicians and policy makers increasingly fail to connect the tax code to what it pays for. One solution could be to reconnect taxation to benefits by dedicating specific taxes to pay for programs and services like infrastructure, health care, and education. In this way, taxpayers can see specific benefits to higher rates that outweigh the costs.”
David Brunori, an audience member who is the executive vice president of editorial operations for Tax Analysts agreed, noting: “Americans want a lot more government than they are willing to pay for, and maybe by asking them to pay for those services they will actually start to want less.”
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