The Beltway vs I-95 on Tax Reform

More

Glenn Hubbard strikes the right note on taxes and the Bowles-Simpson deficit plan. (Although, it sounds like Hubbard would prefer to shift and lower taxes, whereas I'd prefer to shift and raise taxes.)

For a plan so radical, Bowles-Simpson is surprisingly safe:

The commission's proposal ... missed a chance to make better, more radical changes to the revenue system -- like a shift to a consumption tax rather than taxing incomes. My greatest concern, however, is that the plan is more about "principal" (cutting federal debt) than about "principle" (what we want taxes and spending to accomplish).

To meet the nation's fiscal challenges, we need to refocus our economic activity -- primarily with less reliance on consumption and more on investment and exports. The Bowles-Simpson plan to cut marginal tax rates and the corporate tax would help. But their proposal to treat capital gains and dividends, which are now taxed at favorable rates, as ordinary income would not; in fact, it would hamper saving and investment. And the proposed increase in gasoline taxes seems designed simply to plug a budget hole, not to spur energy innovation.

The column reminds me how gaping the canyon between Washington and policy thinkers is. On the I-95 corridor between DC think tanks and Ivy League scholars, you can find considerable support for a dramatic shift in taxes, moving the country from a system that taxes good things to make money (income and investment) toward a system that taxes both to make money and to guide activity (a tax on consumption and carbon emissions would increase savings and support green energy).

But the status quo bias in Washington has a magical magnetic power to it. That's why the Bowles-Simpson plan, radical as it seems, is still very much an inside-the-box and inside-the-Beltway approach to tax reform.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

'Stop Telling Women to Smile'

An artist's campaign to end sexual harassment on the streets of NYC.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Where Time Comes From

The clocks that coordinate your cellphone, GPS, and more

Video

Computer Vision Syndrome and You

Save your eyes. Take breaks.

Video

What Happens in 60 Seconds

Quantifying human activity around the world

Writers

Up
Down

More in Business

Just In