December 16, 2010

Tax Deal Opens Door to Talk About Real Reform

Matthew D. Mitchell

Senior Research Fellow
Summary

Now that the tax compromise is with the House, legislators would be wise to shy away from further complicating the deal by adding more loopholes. This would be moving away from the kind of tax reform we need.

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Now that the tax compromise is with the House, legislators would be wise to shy away from further complicating the deal by adding more loopholes. This would be moving away from the kind of tax reform we need.

The tax compromise is an opportunity for Congress to pivot and start the discussion about what fundamental tax reform really means.  A permanent reduction in rates while broadening the base is a good start, because we need a system that encourages people to work, save and invest.

Tax policy will continue to be uncertain so long as spending remains on its current, unsustainable path.  We cannot tackle one without the other.

If we want real economic improvement, a stronger recovery and lower unemployment, we must get spending in line with revenue. So long as spending continues to out-pace revenue, we will have deficits. And this means higher interest rates, crowding-out of private investment, and a lower capital stock.