Conventional wisdom holds that being pro-growth is synonymous with being anti-tax. But as endless deficits spook the bond market, we need to curtail the reign of hot checks. Restoring fiscal sanity will require spending discipline. It will also demand that we curb the tax expenditures that will claim $2.3 trillion in federal revenue this year, more than Medicaid and Medicare combined.
We should look to the bipartisan 1986 tax reform initiated by President Ronald Reagan for guidance. Both parties have contributed to the current fiscal calamity. President Bill Clinton and a Republican Congress balanced the budget and created surpluses four years in a row before Vice President Dick Cheney pronounced that “deficits don’t matter.”
The tax code’s various loopholes—deferrals, deductions, new definitions—are costly and encourage the wrong behavior. The code has evolved from an instrument designed to create wealth to one designed to preserve it. Today, those who would ordinarily pay the largest tax bills spend untold time and energy playing legalized games of “catch me if you can” with the Internal Revenue Service.
To halt the games and instead invest in real growth, we should take four steps: end the practice of wealthy families’ borrowing against their equity tax-free, eliminate the stepped-up basis, close loopholes that allow companies to stash profit in overseas tax havens, and rescind policies that let private-equity fund managers pay lower tax rates than firefighters, police officers and teachers.
Source: Wall Street Journal Markets · Summarized by HeadlinesBriefing