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January 24, 2006

George K. Yin, who recently stepped down as Chief of Staff of the Joint Committee of Taxation, has a wide-ranging interview in Tax Analysts ($) today. A very smart man, Mr. Yin has lots of food for thought for tax policy nerds afficianados. I hope the TaxProf will pull the interview from behind the Tax Analyst subscriber firewall (UPDATE 1/25: he has!), but this discussion of the difficulties of tax reform is worth passing on:

One of the advantages of any serious discussion of tax reform is the opportunity it provides to overcome the collective action problem that bedevils most tax legislative efforts. Tax reform allows lawmakers to focus on and precommit to providing small benefits for the many, as opposed to -- or in exchange for -- large benefits held by the few. There are, of course, other reasons to consider major tax reform, but to me that is a principal advantage.

Unfortunately, the current state of the tax system is not really conducive to demonstrating easily the "small benefits to be obtained by the many" from any tax reform effort. Recall that when President Reagan took office, the top tax rate on ordinary income was 70 percent. Capital gains, which as recently as 1978 had been taxed at about 50 percent, were taxed at 28 percent. By presenting a tax reform plan that taxed both types of income at no higher than 28 percent, the president and Congress were able to offer the lure of significant, tangible benefits to a broad segment of the population.

Now compare that experience to the current situation, where the top rate on ordinary income is 35 percent and the top rate on dividends and capital gains is 15 percent. Under any reasonable assumption of the amount of revenue that must be raised to pay for essential government functions, it is clear that there is much less room to maneuver in terms of possible tax rate reduction.


Mr. Yin also calls for the tax academics to climb down from their ivory towers:

In particular, I would encourage the academic community to become more active in the debate. For example, legal academics who think seriously about tax policy tend to work on very "big picture" ideas for the long term. They tend to ignore debates on smaller issues being considered in the short term, or even more immediately. Sometimes they write articles after a change has been made detailing the policy arguments for and against the change. But for the most part, these arguments come too late. Thus, they tend to cede the principal debate opportunities to the inside-the-Beltway crowd who provide their input to Congress in real time.

At least two tax profs are already in this game: Jim Maule and Daniel Shaviro. Not coincidentally, they are bloggers. The blog format is tailor-made for the quick responses needed to participate in a legislative debate. Let's hope Mr. Yin, who is now the Edwin S. Cohen Distinguished Professor of Law and Taxation at the University of Virginia School of Law, starts his own tax blog and joins in.

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