Tax Break

That’s not fair! may push U.S. tax revamp

May 1, 2012

It may seem too simple to be true, but the urge among humans for basic fairness may be among the biggest drivers for a revamp of the U.S. tax code, at least competing with the influence of lobbyists, general greed and politics.

That was one message of tax war veterans gathering at the Urban Institute in Washington on Tuesday where Nietzsche, Marx and other philosophers were mulled along with the hard-nosed lessons of the last revamp in 1986 under Republican President Ronald Reagan.

“Fairness is still the queen of principles that brings us back,” to trying to fix the tax code, said Eugene Steuerle, who was a key economic aide in Reagan’s Treasury Department under that historic overhaul.
Democrats and Republicans say they want a rewrite of the code and cite the mind-numbing complexity combined with the unfairness of breaks favoring select groups. The issue could gain steam after the Nov. 6 elections.

Joseph Thorndike, a tax historian, said the notion of fairness has been key to moving tax policy changes over time.

“This is something that we will and should argue about,” Thorndike said. “It is where tax debates begin.”

Two different ways of looking at fairness are horizontal equity – am I treated like my peers? – and vertical equity – am I treated the same, better or worse than those above and below me?

Most people agree on horizontal equity, but views diverge on the need for vertical equity, the experts said.

President Barack Obama’s pitch for a minimum tax on millionaires – named after billionaire investor Warren Buffett – taps into the urge for vertical equity.

“I would not argue as an economist that the Buffett rule is great tax policy,” said Brookings economist Isabell Sawhill, noting that it makes things more complex.

“However, it does speak clearly to the concern that is out there in the public about fairness,” amid growing income inequality, she said.

The urge to close tax ‘loopholes’ addresses the need for horizontal equity, Thorndike said.

But he took a more benign view of loopholes, noting most had a reasonable justification when they took hold.

“Loopholes are just part of democracy,” he said.

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