Federal Revenue Options

William G. Gale

Chairman Nussle, Ranking Member Spratt, and Members of the Committee:

Thank you for inviting me to testify today on federal revenue options. Almost everyone concurs that the tax system could be improved. But agreement on the nature and severity of the problems and how to resolve them remains elusive.

The basic goals of tax reform seem clear. First, taxes should be simple. Second, taxes should be fair. Third, taxes should be conducive to economic prosperity and market efficiency. Fourth, they should raise sufficient revenue to cover the “appropriate” level of government. Fifth, to the greatest extent possible, tax rules should respect people’s freedom and privacy.

Despite the “motherhood and apple pie” quality of these goals, tax policy remains controversial. One problem is that controversy arises over how to achieve each goal. Supporters of increased growth disagree over whether across-the-board income tax cuts, targeted tax cuts for saving and investment, or paying down public debt will do most for the economy. Another obstacle to consensus is that the goals are imprecise: views of what constitutes a fair tax, for example, vary widely. The most important source of controversy, however, is differing value judgments concerning the relative importance of the goals coupled with the fact that the goals sometimes conflict with one another. Research and data may answer technical questions, but they cannot resolve disagreements based on divergent values and preferences.