By Simon Johnson. My written testimony to the joint hearing of the House Ways and Means Committee with the Senate Finance Committee is here.
In the deafening cacophony of Washington-based voices on the debt ceiling, it is easy to miss a potentially more significant development. There is growing bipartisan interest in tax reform, including changing the corporate tax system to make it more sensible – and a bulwark against financial sector instability.
The House Ways and Means Committee and Senate Finance Committee held a joint hearing last week – apparently the first time these two committees have met in this fashion to discuss tax in over 70 years. The theme of the hearing might sound a little dry, “Tax Reform and the Tax Treatment of Debt and Equity,” but in fact it was well-designed to carve out some space for future agreement across the political spectrum.
The basic premise of the hearing was the question: Did the tax code contribute to the severity of the financial crisis in 2008-09? At one level the answer is simple: Yes, because the tax deductibility of interest payments encourages families to take out bigger mortgages and companies to borrow more relative to their equity capital (as dividend payments to stock owners are not tax deductible). But where within the tax code should we focus attention, if the goal is preventing similar crises in the future? Continue reading
Party of Higher Debts
By James Kwak
The Committee for a Responsible Budget recently released an analysis of the budgetary proposals of the four remaining Republican presidential candidates (hat tip Ezra Klein, who shows the key graph). In short, all of the candidates propose to increase the national debt by massive amounts relative to current law, which includes the expiration of the Bush tax cuts at the end of this year.
CFRB compares the candidates’ plans to a “realistic” baseline that assumes the Bush tax cuts are made permanent and the automatic sequesters required by the Budget Control Act of 2011 are waived, among other things. Relative to that extremely pessimistic baseline, Santorum and Gingrich still want huge increases to the national debt; only Paul’s proposals would reduce it. Romney’s proposals would have little impact, but that was before his latest attempt to pander to the base: an across-the-board, 20 percent reduction in income tax rates.
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Tagged national debt, tax reform, White House Burning