Tax Reform

The Moral Case

A nation’s tax code speaks volumes about what its people desire it to be: Does the system encourage citizens to invest in their future? Does it raise enough revenue only for essential services? Does it spread that burden fairly among the populace, ensuring that the vulnerable are not weighed down but also guaranteeing everyone has skin in the game? Or does the system penalize those who attempt to follow their dreams? Does it unfairly reward well-connected and politically favored industries? Is the system complex, onerous, and confiscatory, encouraging citizens to refrain from starting new businesses or to take their investments abroad?

America’s tax code resembles the latter case, placing a huge and immoral burden on the taxpayer and pushing America further from the ideal set out by the founders.

 

The Principles

There are four basic principles for tax reform:

  • The purpose of taxes is to raise the revenue necessary to run the government. Tax policy should never be used by the government to pursue social objectives.
  • Taxes should not distort productive activity. Loopholes and special breaks for crony companies and individuals should be removed and tax rates should be lowered.
  • The tax burden should in some way fall on every citizen. It harms citizenship to have the government be free for a large section of the population.
  • Taxes should never penalize savings and investment. Americans should be allowed and encouraged to save and invest in their futures, not punished through harsh taxation.

 

The Policies

Today’s tax code is riddled with loopholes and unnecessary complexity. To create a fairer system that gives all citizens and businesses equal chances at success, the exemptions should be closed, and rates should be lowered.

While the steps to success are simple, moving down that path can seem close to politically impossible. Each loophole favors some special interest group, and many loopholes serve large sections of the population, such as the mortgage interest deduction. But loopholes are fundamentally unfair. We should create a tax system that impartially raises the revenues necessary to run government, not a system that rewards certain behaviors while punishing others.

AEI