NCPA - National Center for Policy Analysis

REMOVING DOUBLE TAXATION IS HIGHEST PRIORITY FOR TAX REFORM

February 7, 2005

Relief from double taxation should be the highest priority for the Bush administration's tax reform agenda because it will reduce the size of the tax code (a measure of its complexity) and improve economic growth, says Ernest Christian, a former Treasury tax official.

By removing double taxation of saving, investment and international trade, the tax code will shed unneeded complexity:

  • Replacing the dozen different IRA and 401(k) variations with a single alternative that eliminates the double tax on saving will shrink the tax code by more than 1,100 pages.
  • Replacing the half-dozen depreciation systems with simple, first-year expensing for machinery and equipment will reduce the tax code by 400 pages.
  • A straightforward exclusion of export income will remove 100 to 200 pages.
  • Eliminating the two-tax regime for income earned when a U.S. business produces and sells aboard would cut down the tax code by up to 950 pages.

Experiments in the 1990s indicate that removing double taxation, in combination with other simplifications and a plain-English rewrite of the tax law, will halve the size of the Internal Revenue Code.

Most importantly, Christian says concentrating tax reform on eliminating double taxation will also provide a significant boost to economic growth:

  • For each $1 of static revenue cost, switching from depreciation to first-year expensing will increase gross domestic product (GDP) by $9.
  • Switching from double to single taxation of personal saving will boost GDP by about $4 to $7 for each dollar lost in revenue.

Source: Ernest S. Christian, "Tax Reform that Is Kept Simple Presents a Win-Win Opportunity," Investor's Business Daily, February 1, 2005.

 

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