Principles for Tax Reform to Grow the Economy, Not the Debt
Principles for Tax Reform to Grow the Economy, Not the Debt
Fiscally responsible tax reform essential to America’s economic growth and long-term prosperity
Today, the Peter G. Peterson Foundation released a set of eight principles that outline the central components of fiscally responsible tax reform. As Congress and the Administration work toward a new framework for the tax code, we have an opportunity to enact comprehensive tax reform that would set America on a stronger path toward long-term prosperity.
Many are calling for “pro-growth” reforms, but to be truly pro-growth, tax reform must be paid for. Tax reform that worsens our fiscal condition will be counter-productive because growing our debt hurts the economy. Reforming taxes in a responsible way can grow the economy and improve our nation’s fiscal outlook for generations to come.
“It is time to reform our outdated tax code. Smart tax reform can promote economic growth, increase fairness and simplicity, and improve the nation’s fiscal outlook,” said Michael A. Peterson, President and CEO of the Peter G. Peterson Foundation. “Congress and the Administration must work together to pursue policies that set us on a more sustainable fiscal path. In order to be truly pro-growth, tax reform must grow the economy, not the national debt.”
Key Principles to Achieve Tax Reform that Grows the Economy, Not the National Debt
Tax reform done right will promote economic growth, increase fairness and simplicity, and improve the nation’s fiscal outlook.
1. Fiscally Responsible.
Tax reform should not increase federal deficits or debt.
Reforming taxes in a way that worsens our fiscal condition is counter-productive because increasing our national debt harms economic growth. Ideally, lawmakers should pursue policies that improve our already unsustainable fiscal outlook over the short and long run.
2. Pro-growth.
Tax reform should support economic growth, productivity and competitiveness.
This can be done by eliminating market-distorting loopholes and improving incentives to work and invest.
3. Realistic.
Tax reform should be evaluated with realistic assumptions.
Lawmakers should use nonpartisan CBO scoring and consensus economic assumptions, wait for full scoring before voting, and avoid gimmicks that obscure the true fiscal and economic impact of legislation.
4. Comprehensive.
Reform should be comprehensive — tax cuts are not tax reform.
Lawmakers should seize the rare opportunity to reform our outdated tax code by enacting comprehensive changes to both individual and corporate taxes that can have a significant positive effect on the economy. Well-designed reform would pair rate reductions with the elimination or modification of tax expenditures to make the code more supportive of economic growth and improve our fiscal outlook.
5. Fair.
The benefits of tax reform should be widely shared, with the most economically vulnerable protected.
Our tax code is riddled with preferences that help some constituents while hurting others — reform can level the playing field and eliminate unfair distortions.
6. Simple.
Tax reform should increase simplicity.
Our tax code is overly complex. Lawmakers can reduce the burden of compliance while increasing efficiency and transparency.
7. Permanent.
Reform should enact permanent changes to the tax code.
American companies and individuals depend on certainty, predictability and permanency in the tax code to make important operating and investment decisions. Policymakers should not sidestep the “Byrd Rule” by proposing fiscally irresponsible policies that sunset before the 10-year budget window.
8. Bipartisan.
Bipartisan tax reform would be more durable and long-lasting.
Tax reform that does not include support from both parties is subject to continued political battles, making it less certain, thereby reducing the benefit to the economy.
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