An economic adviser to President Obama issued a skeptical assessment of the benefits of tax reform Tuesday, arguing that the economic advantages to comprehensive tax reform likely would fall short of the expectations held by many.
In a speech delivered to the Tax Section of the New York State Bar Association, Council of Economic Advisers Chairman Jason Furman said “fundamental tax reform is not necessary and may not even be sufficient to result in large improvements for tens of millions of people.”
In his speech, Furman suggested that broad tax reform might not generate enough economic growth to make it politically viable. In other words, although everyone involved may be better off with tax reform that paid for lower tax rates by eliminating tax breaks, the specific winners might not receive enough benefits to convince them to take the political plunge to back tax reform legislation.
Instead, he said, a better path might be to pursue specific tax legislation that both Democrats and Republicans favor, such as expanding the Earned-Income Tax Credit for childless workers, and business-only tax reform.
His comments helped illustrate why congressional efforts to reform the tax code have faltered in Congress and why Democratic presidential candidates have been less enthusiastic about broad tax reform than Republicans. GOP candidates have proposed tax reform plans that they say would create millions of jobs by incentivizing people to work more and businesses to invest more.
Those talks were hampered from the start by the Obama administration’s opposition to lowering tax rates for individuals. In the text prepared for his speech Tuesday, Furman said eliminating tax breaks to lower individual income tax rates does “less to change the incentives around labor-leisure choices than meets the eye.” In the end, he argued, it doesn’t matter much to people whether they save taxes through lower rates or tax breaks.
Furthermore, the goal of simplifying the tax code isn’t likely to spur growth, he said. “Most of the complexity in the tax code derives from efforts to accurately measure an abstract concept of income, not from taking particular deductions or exclusions that cause taxable income to deviate from that abstraction.”
Eliminating those deductions, such as the popular mortgage interest deduction, wouldn’t save taxpayers time or effort, because they don’t make paying taxes much more complicated now.
