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This morning I and three coauthors of diverse political perspectives released this paper on “Moving Forward with Bipartisan Tax Policy” (pdf version here).  We had a great turnout (and under Maya’s interpretation, not just because we served food); the audience was keenly interested in both the “bipartisan” and “tax reform” angles of our event, and we had engaging (and bipartisan) members of Congress speaking to them–Senator Ron Wyden (D-OR) and Congressman Paul Ryan (R-WI), who each have their own good ideas for how to reform the tax system.  From the introduction of our paper:

U.S. tax policy is urgently in need of reform. Our tax system is overly complex and has failed to keep pace with changing economic conditions. The current economic crisis has led to an escalating budgetary shortfall, which will exacerbate the already significant fiscal challenges facing the country. Moreover, looming changes written into the tax law will require Congress to make major decisions regarding the tax code. On December 31, 2010, most of the tax cuts passed in 2001 and 2003 (“the Bush tax cuts”) will expire. In the meantime, the Alternative Minimum Tax will fall on tens of millions more American families. And the federal estate tax is scheduled to disappear completely in 2010 before reappearing in 2011. If these changes were permitted to take effect, which is unlikely, they would lead to sudden and significant changes in effective tax rates, after-tax wages, returns to capital, and the distribution of the tax burden. Congress needs to act, not simply to move towards a more stable tax system but to create a tax system adequate to the demands of the twenty-first-century economy…

Regardless of whether the tax cuts are extended, the gap between spending and revenues is projected to increase dramatically in the coming decades due to the effects of an aging population and rising per capita health care costs. Whatever disagreements there may be between those on the right and those on the left about the appropriate size of the federal government, the “correct” level of revenues is that which adequately covers the cost of government spending programs—if not year by year, then over the longer run. The unavoidable economic costs of raising revenue can and should be minimized by creating a tax structure that tries to minimize inefficiencies…

Although the authors of this paper have divergent viewpoints as to the appropriate role and size of government, we agree that the current tax system is inadequate: it raises revenue inefficiently and is not well equipped to handle the challenges of the twenty-first century economy. We agree that the federal government should take the following steps: 

• Create a more transparent and straightforward tax code
• Promote saving by shifting toward a progressive consumption tax
• Rethink tax expenditures
• Update U.S. business income taxes
• Implement an environmentally motivated tax policy 

We believe that a productive discussion of tax reform must start where tax and budget policy considerations intersect. We agree on a number of changes that should be made to the tax code to improve its efficiency and transparency. And, most importantly, we believe tax reform has to be undertaken on a bipartisan basis if it is to be politically acceptable, economically sensible, and long lasting.

As I said in my remarks, for policymakers to be able to come together on tax reform in a truly bipartisan manner, each side will first have to let go of some of their own misconceptions about tax policy.  Republicans will have to realize that not all tax cuts promote economic growth and that contrary to their small-government philosophy, many tax cuts are truly just government spending in disguise; tax expenditures grow government just like any other spending, by requiring that taxes be raised elsewhere to cover their cost.  Republicans will also have to get out of their rote “permanently extend the Bush tax cuts” box.  Democrats will have to realize that while promoting social goals through tax expenditures may seem like the politically most convenient strategy (because the Republicans are less likely to recognize it as “spending”), it is often not the most efficient way to target such spending and typically encourages a benefit pattern that is relatively more generous to higher-income households (i.e., is “regressive” in incidence).  And (my pet peeve) I believe Democrats will have to be willing to not just complain about the unfairness and unaffordability of the Bush tax cuts but actually have the guts to call for (or just allow) their expiration.