The Benefit and The Burden: Tax Reform, Why We Need It and What it Will Take, Bruce Bartlett, (NY: Simon & Shuster, 2012), 258 pages, $26.00
In the opening sentences of the Introduction author Bruce Bartlett tells readers the Federal tax code needs regular attention like a garden needs weeding. Even though the present weedy tangle can only be changed by Congress, Bartlett hopes his book on “the fundamentals of taxation at the simplest level” will help inform the public in the debate.
Bartlett uses the introduction to tell readers he wants to be fair and so confesses a short list of biases. He accepts the need for Federal taxes to take a higher share of GDP and recommends taxing consumption to get it. He believes tax expenditures to be the equivalent of spending. He supports a Value Added Tax but not the Alternative Minimum Tax.
The book has 24 chapters, none of them long and each confined to a single topic or focus. Bartlett labels the first nine chapters, the Basics, and starts with a brief history of federal income taxes and the legislative process of getting a tax bill through Congress.
Chapter 3 reviews many definitions of income that sometimes include and sometimes exclude capital gains, rents, dividends and interest. Bartlett cites economist Irving Fisher who believed interest was not income but the discounted value between present and future consumption. Others have argued it should be consumption and change in net worth, meaning taxes on unrealized capital gains.
Chapters 4 through 8 explain the mechanics of marginal, average and effective tax rates and their affect on tax revenue, economic growth and the business cycle. While explaining the mechanics he finds the wealthy have low average tax rates and then contradicts Senator McConnell and others who claim that tax cuts raise revenue in the long run. The Bush tax cuts reduced federal revenues $2.8 trillion from 2002 to 2011.
Bartlett turns a dubious eye on tax incentives promoting saving and growth, which he suggests do not guarantee more savings, especially if the government has to use them to pay for deficits. The question of progressive taxes gets a 6 page review where he shows progressive rates schedules do not guarantee progressive taxes when there are many exemptions and deductions.
Chapter 9 compares U.S. taxes to other countries. Many other countries have a higher ratio of taxes to Gross Domestic Product than the U.S. He provides tables to compare growth rates with the ratio of taxes to GDP, which also demonstrates that low taxes do not necessarily mean high growth and vice versa. He chides Americans for their provincial views on taxes. Other countries tax consumption more than the U.S. and make use of wealth taxes and environmental taxes that Americans refuse to consider.
The second section of eight chapters identifies and reviews problems of United States taxes: tax expenditures and tax treatment of health care, housing, state taxes, charitable contributions, capital gains, corporations, and tax administration. The tax expenditure chapters take on a disgusted tone describing how current practice erodes the tax base and primarily helps the well to do who save more with deductions from income in high tax brackets.
Bartlett cites health care as the biggest tax expenditure that treats employer sponsored health care as a business expense but not taxable for employees. Where other countries tax their citizens to provide health care, our Federal government disguises their spending through a tax deduction to business. He gives a federal income tax loss of $184 billion and another $250 billion of loss in payroll taxes, although he does not cite his numbers.
Bartlett reminds readers that tax expenditures make things like health care and housing artificially cheap and encourage over use. Deductions for mortgage interest and property taxes do so twice by encouraging more home building and then encouraging local governments to pad local projects paid with property taxes home owners can deduct from their federal taxes, but no benefit to renters.
The last section of seven chapters looks at the future. Bartlett does some review of previous tax reform and reform proposals like the flat tax, a national sales tax proposal, the Herman Cain nine-nine-nine and a few more, but reminds readers that tax cuts alone are not reform. A whole chapter makes the case for more federal revenue, but readers get a big dose of pessimism and a summary of views on the consequences of unsustainable debt.
Two chapters outline the case for and against the Value added tax, but the material includes so many political objections along with a variety of pros and cons these pages reads like a digression or a diversion. Finally, it is on to the Bush Tax cuts and what to do. He gives a listing of the many Bush tax cuts and some archival background before totaling $3 trillion added to Federal debt and declaring the failure of the Bush tax cut policy. Bartlett also gives an unfavorable review of the anti-tax Republicans and Grover Norquist before declaring they will probably be able to prevent tax reform. He gets more pessimistic by suggesting tax reform will be delayed until we have a Republican president and a Democratic Congress.
The book provides basic information to understand taxes and the larger economic issues they raise, but the book is not elementary. Previous effort working and experimenting with the arithmetic of tax calculations for a variety of personal income situations should be considered a minimum prerequisite. All his chapters end with a long list of further reading that allow advanced study for those with the interest.
Bartlett has had a long career in taxes, especially in Congress where he helped draft the Kemp-Roth tax reform back in 1986, but his knowledge and experience do not make him optimistic. He makes recommendations to expand the tax base and raise revenue to meet the needs of spending that “can’t be cut,” but tells readers how and why entrenched political attitudes will prevent them. The book feels sour in a way that befits the public mood for a book published in the year of the fiscal cliff. The fiscal cliff will pass but for better or for worse I am certain the Benefit and the Burden will continue to be relevant, I’m afraid for quite a few years. In that we can be sure Mr. Bartlett will agree.