"The current (federal) tax system is indefensible - it is beyond repair - it is impossibly complex, outrageously expensive, overly intrusive, economically destructive, manifestly unfair, and it severely limits economic opportunity for all Americans." Those were the words of the National Commission on Economic Growth and Tax Reform in 1996, which I was privileged to chair.
The Kemp Tax Reform Commission (of which Treasury Secretary John Snow was a valuable member) recommended to the Congress and the president that the current Internal Revenue Service code be repealed in its entirety: "It is time to replace this failed system with a new simplified tax system for the 21st century - a single low rate, taxing income only once with a generous personal exemption." Additionally, the Tax Reform Commission recommended that the new system be "sealed with a guarantee of long-term stability, requiring a two-thirds vote of the U.S. Congress to raise the rate."
The commission's report isn't the whole book on tax reform. It was the second chapter, following one published in 1976 by the Treasury Department under Secretary Bill Simon during the Ford administration titled "Blueprints for Tax Reform." The blueprints made two great contributions and provided a solid analytical foundation upon which the Kemp Commission based its work.
The commission elucidated the blueprints' emphasis on defining a neutral tax base that does not tax income multiple times. Multiple layers of taxation on work, saving and investment - taxes on wealth at death piled on top of taxes on capital gains, piled on top of taxes on interest and dividends piled on top of taxes on corporate profits and taxes on wages - weaken the link between effort and reward, dry up new capital, depress productivity and kill job creation. Double, triple, quadruple and quintuple taxation of income creates a bias in favor of consumption and against thrift and risk-taking. It prevents the flow of investment to new enterprises and would-be entrepreneurs, and encourages companies to take on extra debt and not hire new workers - a huge problem for manufacturing.
The commission estimated that high marginal tax rates combined with multiple taxation of work, saving and investment act as a double-barreled shotgun aimed at the economy.
Professor Dale Jorgenson of Harvard University estimates the current tax system costs the economy 15 percent to 20 percent in lost output annually. That's why all the empirical evidence demonstrates that lower rates mean higher revenues over the long run.
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