November 6, 2014

November 6, 2014 | Commentary on Taxes, Tax Cuts, Tax Reform

Making Tax Reform Wallet-Sized

Everyone’s prognosticating about the election — who will win, who will lose, and what it all means. No matter what the outcome, the winners are going to have to deal with the fact that when it comes to handling our money, Washington is out of control.

Take tax reform. It’s been nearly 30 years since policymakers overhauled the code — and it shows. What we have today is a polyglot system of credits, deductions and exemptions, spread across tens of thousands of pages that often prove indecipherable to even the most seasoned tax preparer.

On top of that, rates are too high. The code makes it difficult to save and invest, which hurts job growth and depresses wages.

“Because of income- and payroll-tax withholding and the hidden costs of corporate, employer payroll, and excise taxes,” writes tax expert Curtis Dubay in a new Heritage Foundation study, “most Americans have little idea how much they are paying to fund the federal government.”

Yet politicians seldom talk about the need for basic reform. When they do, they use vague terms that may use the latest poll-tested buzzwords, but don’t convey anything concrete. Or they use a huge number that sounds very impressive, but leaves listeners cold.

It’s all well and good to talk about millions, billions and trillions, but these terms just wash over constituents. Without any context, people have no idea what to make of them. More importantly, they have no idea how these large sums could affect them. You can say a certain reform will bring millions in savings, but what does that mean in practical terms?

No reform can catch fire unless people believe in it and press for it. They won’t do that if they don’t see how it will affect them, positively or negatively.

You can say, for example, how defense cuts totaling X billions of dollars will leave us more vulnerable, but don’t leave it there. Tell us how many tanks, rockets or ships that will subtract from our defenses, and what that will mean to our ability to defend ourselves and our allies.

To return to the tax example: It’s not unusual to hear conservative politicians tout a reform that would result in a flat tax (or at least a flatter one, if they’re advocating a more gradual transformation). One that would tax consumption, not investment. One that would tax only what we take out of the economy, not what we put in.

These politicians speak of how this would be a simpler system, how it would be fairer, how it would save time and money, and how it would create jobs and lift wages. And it would. Then they start talking about billions or trillions, and people’s eyes glaze over.

It’s far better to do what Mr. Dubay did in his new study. His conclusion:

“According to the Tax Foundation, the economy could grow as much as 15 percent more over 10 years because of tax reform. After those 10 years, the average American family’s wages would be almost 10 percent higher. That would mean an extra $5,000 in the pockets of families making $50,000 per year (roughly the median income in the U.S. today).”

It’s not hard to picture what an extra $5,000 a year would mean. Families can look at that and calculate how many mortgage, car or tuition payments that would enable them to make. It’s relatable. When they can relate, they’re more likely to act on what they’ve heard.

Good thing, too, because the kind of tax reform Mr. Dubay is talking about could bring a serious wave of prosperity, built on more jobs and hard work. So why aren’t politicians talking in numbers that people can understand?

 - Ed Feulner is founder of the Heritage Foundation.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
Founder's Office

Originally appeared in The Washington Times