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Tax Reform, Galston-Style

Having just written a TRB column arguing against tax reform, I didn't expect to like Bill Galston's argument in favor of it. Strangely, though, I did, for three reasons. 

1.) Galston's proposal to take all income-tax deductions and turn them into a Comprehensive Flat Tax Deduction is intriguing. I won't explain it here, but the basic idea is to take everybody's tax deductions and make them both more progressive and less of a revenue drain. This seems a good strategy to deal with the reality that most of the big tax loopholes (health insurance exclusion, pension exclusion, mortgage interest deduction) benefit a broad swath of the population, albeit unequally, and therefore would be very difficult to eliminate.

2.) Galston argues for a carbon tax, which I like, too (for reasons I explain here), though I'd use it specifically to reduce the regressive payroll tax.

3.) Galston recognizes that government's share of the GDP will have to rise. As a moderate, he is brave to say so.

Even so, I remain unconvinced that the tax code needs to be simpler if "simpler" means fewer tax brackets and lower rates. I also don't believe that Republicans would go for the aforementioned three interesting ideas presented in Galston's column. Also, I don't worry that ending the Bush tax cuts for everybody would, as Galston fears, mess up the economy (unless the economy turns out to be much weaker in 2013 than it is today, as I don't think it will). After all, we muddled through with those rates during the Clinton years.

Ultimately, I don't think Republicans will be able to stomach any tax reform that makes the tax system more progressive while raising substantially more revenue. The change would have to be more progressive than what we'd get by letting the Bush tax cuts lapse, and that's a very high bar to meet. But I wish Galston all the best in trying to meet this test.