One suspects the Obama administration will like the first response to Bloomberg Businessweek’s latest edition of “The Big Question”: How can Washington help business create jobs?
In the first response, Al Hunt suggests a two-year, $1 trillion stimulus.
It’s fortunate that Bloomberg View columnist Caroline Baum offers the second response: a flat tax.
Over the past 60 years, the federal government has snagged an average of 18 percent of gross domestic product whether the top marginal tax rate was 28 percent (1988-89) or 91 percent (1950s). That tells you it’s ineffective to target special interest groups and tweak tax rates to get a little spending here, a little investment there, with the ultimate aim of getting reelected. Instead, in tax matters Washington should adhere to the three Fs: flatten it, fix it, and forget it. More certainty about future rates would help executives assess the viability of long-term investments and spur hiring.
Alas, the decisions of one Congress aren’t binding on the next. And the power to tax is the first of 18 enumerated powers granted to Congress in the Constitution: a power run wild with the introduction of the income tax in 1913. Real tax reform requires real staying power in the form of a constitutional amendment to ensure tax uniformity (no targeted taxes or tax breaks).
Washington isn’t the only place where large-scale tax reform would lead to economic benefits. The John Locke Foundation has touted the benefits of tax reform for North Carolina as well.
