11/16/10

Clean Slates, Baseball and the Tax Code

Sometimes a baseball team is assembled full of overpaid stars with the expectation that they'll all pull together and within a few years, advance far in the playoffs and maybe even win a World Series. In order to do such, the general manager probably overpays a bunch of guys with far-too-big contracts, that seem particularly onerous once he and the entire fan base realize that the team as constituted isn't going to make the playoffs, much less the World Series. Then the GM, assuming he isn't fired, breaks up the team by unloading the players and starts the rebuilding process. This process should be familiar to Mets fans, as well as fans of many other clubs, who have long suffered from the perennial cycle of bringing a team together, getting really excited, watching them briefly succeed, watching them decline and then shipping them all off because they were bums anyway. The clean slate is always exciting because there's always a new group of players out there that will maybe do better than the last bunch.
This kind of rebuilding doesn't happen with the tax code, especially with underperforming credits and tax expenditures. Instead of shipping the underperfoming guy off to Kansas City, Congress never looks at the tax code and says that it's time for a rebuilding year. But Bowles-Simpson wants to do just that. Here's Ezra Klein:
If we cleaned out the code entirely, we could raise the same amount of money by using much lower rates. The same holds true even if we preserve the refundable tax credits like the Earned Income Tax Credit and the child tax credit, as we should. Most of these loopholes and deductions are regressive and distortive -- the mortgage-interest deduction pushes people into bigger homes, for instance, and the exclusion for employer-based health care drives up the cost of health insurance.
The process they advocate -- zeroing out the code and then putting things back in one by one after we've considered them -- makes a lot of sense, and would make even more sense if we did it every 10 years or so. Unlike discretionary spending, the tax code doesn't get reviewed every time we pass a budget, and so it's a much safer home for inefficiencies and interest-group politics.
So, when it comes to the back of form, let's do what any good baseball GM would do and break them up.

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