Judd Gregg: A big bang on tax reform?

There is a growing consensus that one of the more fertile fields for possible bipartisan action between President Obama and this new Congress is tax reform.

This is logical.  

There has already been a lot of good work done in this arena.  

There is the Simpson-Bowles product, which included an extremely aggressive proposal involving both individual and corporate tax reform. 

{mosads}It essentially took the Reagan-Rostenkowski approach of 1986 and updated it, eliminating or reducing deductions and exemptions, and significantly cutting rates. It also used some of the revenue thus generated to reduce debt.

There is the Camp proposal; there is the Wyden/Coats proposal. Both involve comprehensive tax reform, based on the idea that removing special-interest benefits enables us to set lower overall rates.

There are the president’s own suggestions, sometimes made in casual comments, for lowering at least the corporate tax rate by cutting some corporate deductions and exemptions. 

One basic theme undergirds all these ideas: Rates can be reduced for all by eliminating tax breaks for some.

This approach makes a great deal of sense and appeals to many members of both parties.

Democrats like the idea of taking away special tax breaks for folks who had the power to stick them into the code in the first place. Liberals say this would make the tax laws fairer.

Republicans like the idea of encouraging people to use their money more efficiently by investing for return rather than for the purpose of tax avoidance. 

All this is potentially good news. And the possibility of movement actually occurring has been enhanced by the beginnings of a new approach to scoring this tax reform effort.

It has been proposed, at least by the House leadership, that the Congress should direct the Joint Committee on Taxation and the Congressional Budget Office to use some form of dynamic scoring when considering proposals of this type. 

This makes them much more viable. The projections also become much more accurate, being rooted in the real world.

It is simply illogical to suggest that cutting capital gains tax rates, for example, or allowing a viable manner of repatriation of overseas funds, loses money for the Treasury. 

This, however, is how such changes are scored under the static system now used. 

History clearly shows that cutting the capital gains rate not only creates more revenue for the government but also creates a more viable economy. Money that was locked up to avoid taxes moves back into the economy in the form of investments that hasten growth. 

The same is true for oversea funds. The idea that bringing them back to the United States under a lower tax regime loses money for the nation is absurd. 

None at all will be brought back if they are subject to the higher tax, so there is no tax lost.  

More importantly, if there is no change, those funds will stay overseas. But if the laws were altered, those funds could help grow the economy and generate jobs here.

The static scoring of the present process is crazy. It should be replaced with clear, transparent and defensible scoring. It might be called “dynamic” but it is really just the scoring of logical outcomes.

Such scoring would, in any case, give much more leeway to the tax writers to come up with a law that actually drives growth.

In addition, there is a growing bipartisan consensus that the parties should think big. They should not confine themselves to a little tinkering. They should do something on the scale of Simpson/Bowles or Reagan/Rostenkowski — or something even bigger.

It may sound unusual, but why not eliminate the corporate tax altogether and pay for it in part by eliminating the dividend differential? 

The practical effect of this would be that the United States would clearly be the best place in the world to invest and create jobs. It would be explosive in its positive economic impact. 

At the same time, reduce the rates for individuals by eliminating essentially all deductions for high-income people. 

This would allow the new rates to be structured in such a way that the present progressivity of the law could be retained (where 85 percent of the income taxes are paid by the top 20 percent of people in terms of income) but a huge boost in economic activity and investment would be delivered. 

Evaluating such proposals in terms of their logical outcomes  — that is, via dynamic scoring — would show that the Treasury would be awash in money.  We could even use some of it to reduce the debt that is such a clear and present threat to our children’s economic well-being.

What a chance, what a time, what an opportunity to do something really big and good for our nation.  

It would be a Big Bang.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee and as ranking member of the Senate Appropriations Foreign Operations subcommittee.