By Judd Gregg - 10/03/11 09:15 AM EDT
The tax law should promote, not stifle economic activity. It should be designed in a way that raises the revenue the country needs to run while encouraging investment in activities that create jobs and growth.
Unfortunately, our current law is a morass of complex regulations that does little more than promote a robust accounting and legal industry. It has become an anchor that is making us less and less competitive in a world of global competition.
We should throw it all overboard and let it rest on the bottom of the sea where it can do the least harm. It is certainly not doing much for our need to raise revenue efficiently or for our ability to win in a world where capital and investment flows to the most efficient markets.
Tax policy should have a couple of goals. First, of course, it must be seen by the people as fair and understandable, which ensures a high level of compliance and raises the revenues needed to run the government.
In addition, an income tax needs to have a high participation level so the majority of Americans have an interest in seeing that it is fair and reasonable.
When taxes get so high or convoluted that investments are made to avoid their effect or people reduce their earning effort because the return seems of marginal worth, then you end up with tax policy that becomes counterproductive and a drain on economic activity. Investments are not made, jobs are not created and people reduce their productivity.
This is exactly what is occurring today under our current law. We have become less productive, our economy has slowed, jobs are not being created — and in large part these results stem from tax laws that are not working properly.
This is all being compounded by an administration that presents as its answer to this problem more policies to make tax laws even less effective in promoting economic growth. This is not good.
The tax laws can actually accomplish their primary goal of generating the revenues needed to run the nation’s government while also being a force for, rather than a drag on, economic expansion. But this cannot happen with our current law.
The whole thing needs to be scrapped. We need to start over. We need to look at our competition, especially in Asia. These nations understand that you get more revenue, not less, by having tax rates at a level where you get high compliance and money invested to make money, which leads to greater economic activity and jobs.
Tax avoidance should never be a primary or even significant consideration in where capital is invested. If it is, then the nation becomes less competitive. Neither should the goal be primarily one of income redistribution. Although a progressive tax rate is important, it should not be punitive.
A major tax rewrite is critical to get us on the right track. We need a law that is fair, simpler and progressive, and that exchanges the elimination of numerous deductions and exemptions for much lower tax rates on everyone.
This type of reform is being considered. Sens. Ron Wyden (D-Ore.) and Dan Coats (R-Ind.) have offered a bill that does this, although it is misdirected on the issue of taxing global profits. The Simpson-Bowles commission made a dramatic recommendation in this area. It is doable. In fact we have done it before with the tax legislation under former President Ronald Reagan and former House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) in 1986.
If done soon, such a redo of our tax laws will throw a large, positive, electric jolt into our economy. It will give people confidence in the fairness of the tax laws, it will cause a more effective use of investment dollars, it will create jobs and it will generate much-needed additional revenue to assist in reducing our deficits.
This should be a political “no-brainer,” unless our government has lost its marbles, in which case we shall stay in the land of tax “Oz” where nothing makes sense and we fall further and further behind the global competition.
Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and as ranking member of the Senate Appropriations subcommittee on Foreign Operations.