Taxes are like the weather in one way: everyone complains about them.
But how the government raises revenues is something that people can
influence, as long as they have a good understanding of the stakes and
options.
Sensible Taxes and Practical Politics argues that American tax rates
are too low and are indiscriminate. James Hines, a leading authority on
tax policy, controversially posits that the base tax rate should be
higher but there should also be more ability for individuals to reduce
their taxes. This is the only way to create an equitable and efficient
tax system makes distinctions among people and that treats them as
individuals rather than classes. And as tax policy reflects societal
values and goals, it is perfectly legitimate for it to create incentives
by facilitating significant deductions for dependents, child care
expenses, exceptional medical expenses, casualty losses, charitable
contributions, education expenditures, and other expenses associated
with employment and income production. While the headline tax rate may
be high, the real rate, after deductions, is much lower.
By contrast, the pursuit of lower baseline tax rates has, Hines shows,
produced revenue shortfalls, inefficient incentives, and tax inequities.
The current tax system creates distortions and is unfair because of the
reduced provision for personal circumstances. It is also dishonest
because it claims to be progressive but is not.
The art of tax design entails tailoring tax burdens to collect revenue
from activities that are least likely to be distorted by taxation. As
for individuals, so too for business, Tax policy should treat
preferentially firms and activities that might diminish or disappear if
taxed heavily. Tax policy is a fundamental part of governance and
encompasses difficult economic and political judgments. Hines provides
an honest assessment of the interaction of politics, values, and
taxes.
