Despite the obvious need for tax reform, some in Washington are advocating that congressional Super Committee charged with finding a balanced deficit reduction package not tackle tax reform. They claim it's too complicated, too hard, or too long-term.
They're wrong. Delaying tax reform will only make implementing the solution harder and more painful. There has never been a better time in which to enact tax reform. The Super Committee was created as part of last summer's debt ceiling agreement to require Congress to vote up or down, without amendment, on tax reform as part of its plan to address the federal government's medium and long-term fiscal imbalance. This BRAC-like power is designed to limit the influence of special interests whose work in the past has littered the tax code with loopholes. This opportunity is not likely recur anytime soon. It is, therefore, in the Super Committee's interest to act now rather than wait.
Tax policy is complicated. But lawmakers on the Super Committee don't have to start from scratch. There are already a number of plans that would dramatically lower marginal rates for individuals and businesses, eliminate tax expenditures, and grow revenues for deficit reduction. For example, the Zero Plan put forward by the Bowles-Simpson Fiscal Commission (what some refer to as 1986-style tax reform on steroids), would lower marginal rates and simplify the tax code from six to three tax rates, tax capital gains and dividends as ordinary income, eliminate the burdensome Alternative Minimum Tax, align the corporate and the top individual rate, move our corporate tax code to a territorial system, and eliminate all or most of the $1.1 trillion in tax expenditures.
Furthermore, the Super Committee does not to choose between writing a full tax reform bill in two months or agreeing to an open ended process for tax reform in the future. The Bowles-Simpson Fiscal Commission, Gang of Six, and others have proposed setting up a procedure for expedited consideration of tax reform that sets out parameters and criteria for what tax reform must include in addition to the revenue target while leaving details to the Senate Finance and House Ways & Means committees. Such an approach ensures true tax reform will be voted on while leaving the details to those who have the expertise to get the job done.
In addition, fundamental reform, which broadens the base by reducing deductions, credits, exemptions, and other tax expenditures; simplifies the code; and lowers individual and corporate tax rates, has the potential to substantially improve economic growth. The Joint Committee on Taxation has estimated that income tax reform that wipes out most tax expenditures in order to lower marginal rates, could increase the size of the economy by 1.2 to 1.9 percent of GDP over the medium-term, and even more over the long-term.