Why Progressives Cannot Do Tax Reform

Commentators on both sides of the ideological spectrum concur that the federal tax code is too complex, too burdensome, inherently unfair, harms economic growth and reduces U.S. global competitiveness. The solution is broad-based (that is individual and corporation) income tax reform; generally defined to consist of broadening the tax base by removing deductions, exemptions, credits and loopholes in exchange for lower tax rates. Yet, when one surveys the tax policy landscape, there are numerous proposals from conservatives on Capitol Hill or on the campaign trail, but none from progressives. This stands in stark contrast to the run-up to the last successful tax reform in 1986, which featured strong voices on the left (Bill Bradley, Richard Gephardt) as well as the right (Jack Kemp, Alvin Roth).

What is going on?

The takeover of the left side of the political spectrum by "progressives" is a central change in the tax reform dynamic. Progressives simply cannot do tax reform since its core objectives are in conflict with their values.

The reason tax reform seeks to broaden the base and lower tax rates is to permit government to take income away from private citizens - the ultimate point of taxes in general - without skewing their economic choices. The more the tax system dictates which products to buy, which investments to make, how much to work and other core economic decisions, the less those decisions are made on the basis of what citizens desire, costs of production, and other economic merits. The goal is to raise taxes with a minimal interference in the values and choices of the populace. Or, in the famous words of Jean-Baptiste Colbert "The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing."

Progressives believe that the default is the government controls all the income in the economy. They regularly accuse conservatives of "giving" tax cuts to the rich, while they promise to "give" tax cuts to the middle class. The core belief is that it is the government's money to give. There is no room in the progressive policy framework for concern over economic damage inflicted in the process of taxation, and no incentive to do tax reform to reduce it.

There is also no genuine concern over individual values. In the progressive framework, tax breaks are payoffs for preferred behaviors; i.e. for successful social engineering of the progressive party line. To see this, consider the leading tax proposals espoused by candidate Clinton as she reinvents herself in the pursuit of Obama's progressive base:

• Progressive goal: eliminate "short-termism" (despite no evidence that it exists). Tax policy: tax capital gains with a holding period of one to two years at the 39.6 percent rate, gains of two to three years at a 36 percent rate and thereafter reduce the rate by four percentage points per year until reaching the current long-term rate of 20 percent at six years.

• Progressive goal: steer profits to labor. Tax policy: a tax credit for employers offering employer profit-sharing plans.

• Progressive goal: send everyone to college (despite lots of evidence this is not a sensible goal). Tax policy: "tax cut of up to $2,500 per student to help deal with college costs."

I could go on, but the basic point is that there is no real tax policy. There are simply payoffs for meeting progressive objectives.

As a final point, notice that the progressive approach is designed to generate unfairness. If the taxpayer doesn't conform to the progressive agenda, she will pay higher taxes than another similarly situated taxpayer.

The traditional approach to tax reform is to make the tax code fairer and more respectful of taxpayer economic values. Progressives can't do tax reform because they don't really believe in either.