Daniel Henninger makes a convincing case in favor of the “draft” income tax recommendations issued by President Barack Obama’s deficit commission chairmen (“8-14-23 or Fight!” Wonder Land, Nov. 18 ).
A major part of the proposal is to overhaul and simplify the income tax code, doing away with “tax expenditures” (i.e., deductible expenses such as mortgage interest) and replacing current rates with an 8% bottom rate, a middle rate of 14% and a top rate of 23%. If Washington could be trusted, even a little, that would be a terrific long-term, pro-growth tax system, although certain sectors (e.g., real estate) might be disrupted as buyers and sellers adjust to a no-deduction tax code.
The problem with moving to 8-14-23 is trust. President Ronald Reagan took us to 15%, and 28% in 1986. In exchange for lower and simpler rates, taxpayers gave up a number of deductible expense items. That was a reasonable trade-off at the time.
The economy boomed, but the top rate of 28% was short-lived. A few years after the rate took effect, President George H.W. Bush agreed to a small increase; two years later the top rate increased to 39.6% under President Bill Clinton. The economic lesson taught during the 1980s and 1990s was that tax-rate simplification and reduction result in growth and increase federal revenues. But the political lesson was that the loss of tax deductions (or “tax expenditures”) was permanent, while tax-rate reductions were temporary.
Superb Tax Proposal: The Problem Is in Trusting D.C. – WSJ.com