The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take by Bruce Bartlett

The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take
by Bruce Bartlett

Book Description
Publication Date: January 24, 2012

A thoughtful and surprising argument for American tax reform, arguably the most overdue political debate facing the nation, from one of the most respected political and economic thinkers, advisers, and writers of our time.

The United States Tax Code has undergone no serious reform since 1986. Since then, loopholes, exemptions, credits, and deductions have distorted its clarity, increased its inequity, and frustrated our ability to govern ourselves.

At its core, any tax system is in place to raise the revenue needed to pay the government’s bills. But where that revenue should come from raises crucial questions: Should our tax code be progressive, with the wealthier paying more than the poor, and if so, to what extent? Should we tax income or consumption or both? Of the various ideas proposed by economists and politicians—from tax increases to tax cuts, from a VAT to a Fair Tax—what will work and won’t? By tracing the history of our own tax system and by assessing the way other countries have solved similar problems, Bartlett explores the surprising answers to all of these questions, giving a sense of the tax code’s many benefits—and its inevitable burdens.

Tax reform will be a major issue debated in the years ahead. Growing budget deficits and the expiration of various tax cuts loom. Reform, once a philosophical dilemma, is turning into a practical crisis. By framing the various tax philosophies that dominate the debate, Bartlett explores the distributional, technical, and political advantages and costs of the various proposals and ideas that will come to dominate America’s political conversation in the years to come.

About the Author

Bruce Bartlett is a columnist for the Economix blog of The New York Times, The Fiscal Times, and Tax Notes. Bartlett’s work is informed by many years in government, including service on the staffs of Congressmen Ron Paul and Jack Kemp and Senator Roger Jepsen, staff director of the Joint Economic Committee of Congress, senior policy analyst in the Reagan White House, and deputy assistant secretary for economic policy at the Treasury Department during the George H.W. Bush administration. Bartlett lives in Virginia.

More About the Author

Bruce R. Bartlett Biography

Bruce Bartlett is a columnist for The Fiscal Times, an online newspaper covering public and personal finance, and Tax Notes, a weekly magazine for tax practitioners and policymakers. He also contributes a weekly post to the Economix blog at the New York Times, and writes regularly for the Financial Times. Bartlett was previously a columnist for Forbes magazine and Creators Syndicate. His writing often focuses on the intersection between politics and economics and attempts to inform politicians about economics, and economists about the current nature of politics.

Bartlett's work is informed by many years in government, including service on the staffs of Congressmen Ron Paul and Jack Kemp and Senator Roger Jepsen, as executive director of the Joint Economic Committee of Congress, senior policy analyst in the Reagan White House, and deputy assistant secretary for economic policy at the Treasury Department during the George H.W. Bush administration.

Bruce is the author of eight books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006). His last book was The New American Economy: The Failure of Reaganomics and a New Way Forward (Palgrave Macmillan, 2009). His new book, The Benefit and the Burden, will be published by Simon and Schuster in 2012 and is a history and review of issues related to tax reform.

TWO READER REVIEWS:

5.0 out of 5 stars Excellent -, January 24, 2012
By Loyd E. Eskildson "Pragmatist"

Bruce Bartlett's "The Benefit and the Burden" provides an easily readable, credible, and useful overview of American federal taxes and their impact. Bartlett also provides a number of improvement suggestions based on well-thought-out logic rather than useless ideology.

Bartlett begins by pointing out that close to half of all tax filers either pay no federal income tax or get a refund - an obvious built-in incentive for expanding government spending. Then he covers recent macro-level changes, starting with Clinton's raising the top rate from 31% to 39.6% in 1993. Bush I had previously raised it from 28%, his 'No new taxes' pledge notwithstanding. Clinton's rate increase, however, was also accompanied by also increasing the threshold from $86,500 to $250,000. Clinton's actions were followed by rapid economic growth, declining Federal outlays (from 22.1% of GDP to 18.2%), and a 4.7% GDP deficit becoming a 2.4% surplus - all contrary to the dire predictions of opposing Republicans. Then came the Bush II tax cuts and a 3.2% GDP deficit, sluggish economic growth, and The Great Recession.

Many complain that America's taxes are too high (uncompetitive), and headed for European levels. Bartlett shows that neither assertion is based on facts. In 2008 the average total tax burden in OECD nations was 34.8% of GDP, vs. 26.1% in the U.S. Denmark topped the list at 48.2%, and Sweden was close behind at 46.3%. Belgium, Italy, and France were also close, and above the OECD average. Explanations for high European tax rates include 1)greater homogeneity (welfare is seen as helping people like themselves, not 'those others'), extra benefits provide Europeans (all European nations provide health insurance through their government), and a preference for simpler direct government spending, instead of tax credits as in the U.S.

At first glance, the U.S. has the lowest top tax rate (43.2% - includes an estimate for state taxes), vs. Denmark with the highest (62.8%). However, the highest U.S. rate takes effect at the highest multiple of average income (9.6X), vs. Denmark (1.0X). Thus, other OECD nations' taxes are flatter, and less progressive than in the U.S. Foreign nations also rely more on consumption taxes - 29.9% of total taxes in OECD nations, vs. 14.4% in the U.S. Property taxes also contribute a larger U.S. share - 12.1%, compared to 5.4% in the OECD.

Conservatives contend that low taxes bring greater growth. Analysis of real GDP growth/capita from 1979 - 2010 does not bear that out. Ireland had the greatest annual growth rate (3.2%/year), and slightly higher taxes/GDP (28.4%) than the lowest growth state, Italy (26.1% taxes/GDP). Intermediate-growth ranked states ranged from 46.7% (Sweden - #10) to 22% (Spain - #5). European states spend less on defense, more on public infrastructure and transportation, less on income transfers to the elderly.

Nordic nations tax income at lower rates than labor, like the U.S. OECD and other major nations tax environmentally harmful activities more than does the U.S. - 2.2% of average GDP for OECD nations, 0.8% for the U.S.

Bartlett also points out that the U.S. taxes its citizens abroad - the only nation to do so.

Directly comparing taxes from one nation to another is made difficult by varying policies. For example, Medicare Part B premiums ($61 billion in 2010) are shown in our budget as reducing spending, not as revenues. Overall, such practices amount to another 4% of GDP for the U.S. - $600 billion in 2010. We also have tax deductions and credits that equate to spending programs. The Earned Income Tax Credit is an example - it provide about 80% of its benefit via refunds. Child care credits are another example. Bartlett says both have become targets for fraudulent claims.

Concern over tax equity has declined as deficits have grown, and after Cheney's claim that 'Deficits don't matter.'

Net social spending as a share of GDP in 2005: France - 34%, U.K. - 30%, U.S. 27%, Japan and Canada - 23%, Korea - 11%. (These data include mortgage interest and health care deductions.)

Charitable contributions generated a $53 billion revenue loss in 2012, mostly from the upper-income. Another questionable loss - allowing the Heritage and other foundations tax-exempt status.

Unreported income in the U.S. for 2005 is estimated at $1.3 trillion.

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February 6, 2012
By J. Kimbrough (Bavaria, Germany)

In this book, Mr. Bartlett, a supply-side economist, no-nonsense approach to tax policy proves surprisingly appealing. In his balanced and well researched book on America's complex tax system, he walks the reader through discussions on income and spending to include the complexities of it. In his critique, he says that the US Tax system is deceptive and is far too costly. There are many "hidden" tax expenditures that do not show up in the statistics, but if you were to include them, the US would have just as much an inflated budget as the countries in the EU. He argues that tax rates in the US should be cut, the tax base broadened and loop holes closed. He believes the VAT (Value Added Tax) used in Europe system is a better way. It taxes consumption and gives credits for business expenses which he claims this system is far more efficient, raises more money with less cost to economic growth.

He writes this system should be adopted in the US for these reasons. However, he knows in politics, they will not let this happen. Conservatives do not want any new taxes and are afraid that increased revenues will cause temptations to increase spending. The liberals are afraid this will harm the "poor" or low income families. This is a "flat" tax where current income tax is progressive.

In the end, he writes until both parties can sit down and work out a compromise to our current tax & spend system nothing will change - Nothing "really" new here.

He does a good job of presenting his ideas and it is Interesting reading if you are interested in an analysis of the US tax system. Expect to see more books in this direction on both sides in this "bipolar" election year.