Q&A on Tax Reform

April 5, 2007

The one thing that everyone agrees on is that taxes shouldn’t be so complicated. Yet every year, they get more complex. William Gale explains how the next president can move quickly to make the tax code simpler and more fair.

Related Opportunity 08 Content:
Fixing the Tax System, William Gale


“I think a new administration faces a lot of domestic economic issues, most certainly health care, most certainly restructuring of domestic corporations, rising inequality in the country. The interesting thing about taxes is that it’s related to all of these other concerns. The way we tax healthcare creates incentives to spend too much. The way we tax compensation creates incentives to give people stocks rather than, rather than wages, creates issues there.

“My proposal is based on three main items. The first is to tax all income but only tax it once. Right now we tax some income more than once, we tax some income not at all; it’s a very uneven mess. And taxing all income once is both equitable and it’s conducive to a stronger economy because people would then focus on doing things for the economic reason, not taking some tax subsidy.

“We give an enormous amount of subsidies in the tax code, hundreds of billions of dollars per year. So if we can change the way those subsidies are given to people, and we can reduce the amount of subsidies in the tax code, we can reduce tax rates a lot. And so that’s the benefit of cleaning up the tax subsidies.

“The third part is, frankly, make it simple. Even given the tax code we have, it’s needlessly complicated for people to file taxes.

“The one thing that everyone agrees on is that taxes shouldn’t be so complicated, and yet every year, they get more complicated. So there’s sort of a dysfunctionality at the political level operating here that needs to be stopped, that needs to be reversed.

“The thing about taxes is we will have to do something in the first two years of the next administration. We will either let the tax cuts expire, we’ll extend them, or we’ll change the tax system around. But one of those three, at least one of those three, will have to happen. So it needs the attention of the new administration, basically from Day One, because it takes a long time to figure out how to reform the tax code.”