Change We Can Afford

On Tuesday, June 24, 2008 the New America Foundation’s Next Social Contract Initiative hosted a panel discussion with Yale Law School professor Michael Graetz; Maya MacGuineas, President of the Committee for a Responsible Federal Budget and Director of the Fiscal Policy Program at New America; and Michael Lind, Whitehead Senior Fellow at New America. Professor Graetz spoke on his new book, 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States. The panelists offered responses to the book followed by Q&A with the audience. Howard Gleckman, Senior Research Associate at the Urban Institute’s Tax Policy Center moderated the discussion. An MP3 audio recording can be downloaded below, while video is available at right.

In his comments, as in his book, Graetz called for a dramatic reform of the American tax system. He pointed out that, while the nation’s overall rate of taxation is relatively low compared to other OECD nations, our high corporate and income tax levies prevent us from reaping the rewards of our productivity--particularly in an ever-more globalized economy. Graetz proposes a value added tax (VAT) on consumption spending as the primary vehicle for reform. He would eliminate the income tax for households earning under $100,000, lower it to 25% for other households, and provide a payroll tax credit to low income earners. He also recommends lowering the corporate tax rate to 15%. The overall package of reforms would, according to Graetz, make US corporations more competitive while maintaining a progressive tax system and provide the political climate for the government to take responsibility for its budget.

MacGuineas praised Graetz’s proposal and agreed with his recommendations on most fronts. She stated that such a dramatic change was necessary in order to restore stability to the tax code—observing that special interests oppose any suggestion of incremental reform, curtailing of tax expenditures or raising tax rates. MacGuineas went even further, proposing the creation of a progressive consumption tax and the elimination of the income tax for all but the wealthiest individuals.

Lind addressed the political feasibility of a consumption tax. He spoke of the Regan and Bush tax cuts as popular “revolts” against tax policy that occurred because people felt sticker shock at the magnitude of their tax burdens. Lind favors a less transparent system that would be more politically sustainable. The consumption tax, as proposed by Graetz, would charge people only in small increments at the time of consumption making it less likely to trigger sustained opposition. In contrast to MacGuineas and Graetz, Lind said he favored the use of tax credits to make economic policy. He suggested that they allow the government to redistribute across barriers of income, race, or location whereas direct entitlement transfers cause political controversy and popular resentment.

-Tyler Ibbotson-Sindelar, Research Intern for the Next Social Contract Initiative See map: Google Maps

Participants

Featured Speakers

• Professor Michael Graetz
  Justus S. Hotchkiss Professor, Yale University Law School
  Author, 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States

• Michael Lind
  Whitehead Senior Fellow
  New America Foundation

• Maya MacGuineas
  President, Committee for a Responsible Federal Budget
  Director, Fiscal Policy Program, New America Foundation

Moderator

• Howard Gleckman
  Senior Research Associate, The Urban Institute/Tax Policy Center
  Editor, TaxVox blog