Excerpt
JEFFREY BROWN (Newshour): We reported earlier on the political maneuvering over taxes. We look now at the tax system more broadly, where the problems lie and what it would take to fix them.
For that, we're joined by two people involved in bipartisan efforts.
Alice Rivlin of the Brookings Institution is the co-chair of a debt task force at the Bipartisan Policy Center. She also served on President Obama's debt commission and is founding director of the Congressional Budget Office. Donald Marron is director of the Tax Policy Center. He has searched as a member of the Council of Economic Advisers for President George W. Bush and acting director for the CBO.
More excerpts (aka truths)
ALICE RIVLIN: It's too complicated, for one thing, much too complicated.
It takes people who have complicated economic lives a long time to fill out their taxes. The reason it's so complicated is, over the years, there have been special provisions of various sorts that have crept into the tax code which reduce the income that is subject to tax.
And that means that the rates that everybody pays are higher than they would otherwise have to be to raise the same amount of revenue.
JEFFREY BROWN: And these people look for ways to bring their rate down.
ALICE RIVLIN: They do. And it's perfectly legal. These things got into the tax code for various reasons.
For example, the deduction of mortgage interest was there to encourage home ownership, which people think is a good thing. But it complexifies the tax code. And it means that less income is subject to tax. And, therefore, you have to pay a higher rate.
JEFFREY BROWN: Well, speaking of social goals -- you raised the deductions. A lot of these things were put in place for good reasons, at least well-meaning reasons. Right?
ALICE RIVLIN: They were. But some of them have very perverse consequences.
Come back to my favorite example of the home mortgage deduction. You wouldn't design a home ownership incentive to have it aid higher-income people more than lower-income people. But this one does, because higher-income people pay higher rates. And they have more expensive houses. So the benefits of the home mortgage deduction go very heavily to upper-income people and don't help middle-income people much at all.
JEFFREY BROWN: And then these things become ingrained.
DONALD MARRON: So they become ingrained.
And just to beat on the mortgage interest deduction for a moment, it also rewards you for going into debt, not for having a home. It's again not something that is designed to really pursue a good social goal. But then it has defenders, as you say. Whenever we hold events on the mortgage interest deduction, we can count on an audience filled of realtors.
ALICE RIVLIN: But if you got rid of or phased out or phased down a lot of these special provisions, then you would have another popular thing, which is lower rates and a simpler tax code.
ALICE RIVLIN: Well, yes. And there would be a lot of losers because you get rid of a lot of small deductions and quite technical things that we haven't even talked about, but which people have a stake in.
So everybody would gang up and say you can't do this and this to us. But if you were doing it to a lot of people and you got a better tax code in the bargain, it might actually fly and for the reason in part that Donald mentioned. We do need more revenue. We can't solve the problem of our looming deficits on the spending side alone.
All of the commissions and committees have come out and said we have to do both. We have to do less spending and raise some more revenue.
COMMENT: I have doubts about having REAL tax reform. Why? Because there are too many interests that benefit from the tax code as is and public shortsightedness.
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