4) If the goal is deficit reduction, why does the Commission’s plan reduce tax rates? Isn’t the Commission plan a tax cut for the rich?
Rather than inhibit our ability to reduce the debt, comprehensive tax reform which broadens the base and lowers rates enhances our ability to do so. Just as importantly, lower rates and a broader base will help to promote economic growth, which will result in greater revenue, increase the nation’s debt capacity, and make painful tax and spending changes easier for individuals to bear.
Currently, the United States spends over $1 trillion a year on tax expenditures, the various deductions, credits, and exclusions that are really just spending by another name. By scaling back or eliminating these expenditures, there is plenty of room to both reduce the deficit and reduce marginal rates. In doing so, the Commission’s tax reform plan would be likely to promote economic growth even as it raised an additional $180 billion in revenue in 2020 alone.
Moreover, because tax expenditures disproportionately benefit those at the top, the Commission’s tax reform plan would actually increase the progressivity of the code. Under its illustrative plan, the bottom 20 percent of taxpayers would receive a small tax cut, while those in the middle paid 1 percent to 1.5 percent more of their income and those in the top 1 percent paid an extra 8 percent of income. This is hardly a tax cut for the wealthy.