NCPA - National Center for Policy Analysis

True Tax Reform Improves the Economy, Does Not Raise Taxes

November 16, 2011

In reforming the nation's tax structure, the overarching goal that makes the whole effort worthwhile is to achieve a stronger economy.  The basic rule is that tax reform should be revenue neutral.  The simple mantra is that the base must be expanded to become more economically neutral and that marginal tax rates must be lowered.  Tax reform could involve adopting an entirely new tax system, but, generally, it means changing the federal tax system while retaining its basic outline.  There is little dispute that the current federal income tax in particular is in real need of an overhaul to improve the economy, says J.D. Foster, the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at the Heritage Foundation.

In attempting to achieve the overarching goal, politicians must truly dedicate their efforts to tax reform insofar as it will improve the economy.  Some policymakers make broad claims that a given policy would make the tax code fairer or that it would simplify its provisions.  While these may be good ends, the ultimate end must be economic improvement, as this is the highest end that taxes can hope to achieve.

Particularly in a time when national leaders are seeking to cut deficits, the focus on revenue-neutrality becomes crucial. 

  • In assessing the United States' budget woes, it must be recognized that the deficit is indicative of a spending problem, and that this should be dealt with separately from a taxing problem.
  • Furthermore, the need to keep tax reforms revenue neutral points to the need for greater transparency in the exact effects of various tax expenditures (provisions within the tax code that reduce taxes in certain cases).
  • In advocating reforms, no tax expenditure should be taken as a given, and all options need to be considered.
  • Finally, reformers should seek to lower rates, of course, and produce a tax code that is economically neutral.
  • This is to say that the need to pay taxes should not introduce distortionary effects into the market, and should implement provisions that reduce its own impact.

Source: J.D. Foster, "True Tax Reform: Improves the Economy, Does Not Raise Taxes," Heritage Foundation, November 2, 2011.

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