Bruce Bartlett has a new book coming out in a couple weeks; you can pre-order it on Amazon here. It looks like another great piece of work from Bruce. Here’s a excerpt from the first review of it, by Vanessa Houlder of the Financial Times:
In Mr Bartlett’s view, higher tax revenues are needed to stabilise the US’s finances; one of the goals of tax reform should be to make the higher tax burden more bearable. But it will not happen unless there is a much better public understanding of how the tax system works. The author sets out to guide the uninitiated through the fundamentals of taxation at the simplest level. This deceptively dry approach is the basis of a powerful critique of the myths, misconceptions and inequities of the tax code.
The public misunderstands basic facts about the tax system. Polls show that most people overestimate federal tax rates. Few know that close to half of all tax filers either pay no federal taxes or get a refund. Even for the wealthiest people, the top rate of 35 per cent – half what it was as recently as 1980 – is not nearly as high as people imagine. The reason the US has one of the most progressive income tax systems in the world is that the income threshold at which the top rate takes effect is much higher than other countries.
Rates are only part of the story. Many taxpayers in the top 1 per cent of the income distribution pay less of their income in federal income taxes than those barely in the middle class. One reason is that wealthy people often own their businesses, so can pay themselves in the form of lightly-taxed dividends. Another reason – the main target of Mr Bartlett’s ire – is the plethora of credits, deductions and tax breaks that distort behaviour and subsidise special interest groups. The curtailment of these tax “expenditures” would be enough to raise the revenues the US needs.
This is not a novel suggestion. As a veteran tax reformer, Mr Bartlett has spent years fruitlessly arguing for the abolition of cherished reliefs, such as mortgage interest deduction, which costs nearly $100bn a year. He views such tax breaks as “loopholes” and laments the absence of popular outrage about the scope they provide for gaming the system.
The reason, he speculates, is the declining emphasis on a balanced budget and the oft-repeated mantra that “deficits don’t matter”: the public no longer believes that if some taxpayers do not pay their share, others will have to pay more.
Conservative opposition to higher taxes is overwhelming and probably insurmountable. But attitudes can change. The trigger could be inflation, high interest rates and economic instability ushered in by a worsening debt crisis. Mr Bartlett points out that when inflation became a problem in the 1960s, people saw budget deficits as the primary cause. This made them more sympathetic to tax increases, such as the 1968 surtax.
I guess in the end, Bruce must sound at least somewhat optimistic or hopeful for the change in fiscal course that’s needed, for the FT review concludes with:
The challenges the book describes are not insurmountable. But reform will require compromises from all sides that are currently unthinkable as the US heads into an election year. Politicians seem unable to grapple with radical change. But once their backs are against the wall, coping with a future debt crisis, perhaps they will.