Rule #1 of tax reform: Tax reform does not raise taxes.
The budget resolution sponsored by Representatives Jim Cooper (D–TN) and Steve LaTourette (R–OH) breaks this rule. In reality, it is a massive tax hike of nearly $2 trillion, according to Americans for Tax Reform.
The Cooper–LaTourette budget follows the faulty path first worn by President Obama’s Simpson–Bowles deficit reduction panel. Cooper and LaTourette, like Simpson–Bowles before them, would eliminate most credits, deductions, and exemptions and lower marginal tax rates—but not nearly enough.
Their plan targets a top rate in the range of 23–29 percent. That means they could’ve reduced rates considerably lower than that range to keep the plan revenue-neutral.
They passed on this growth-oriented option because they want higher revenues to lower the deficit. But higher taxes never lower deficits, because Congress spends all the extra money it raises. True deficit reduction comes only from spending restraint, as House Budget Committee chairman Paul Ryan showed last week.
Tax reform also requires more than eliminating all exemptions, deductions, and credits with one broad stroke. Some misnamed tax expenditures—such as the mortgage interest deduction, the deduction for charitable contributions, and exemption for contributions to retirement savings accounts—are vital to maintaining a neutral tax code.
The exclusion for employer-provided health insurance, while not sound policy, should not be thrown out without other reforms to the treatment of health insurance.
Simply ridding the tax code of these provisions in a misguided effort to lower the deficit through tax hikes will compound the problems that the tax code poses.
Congress should look to a real tax reform plan—such as Heritage’s New Flat Tax—for an example of how to do tax reform the right way.