ASK Republicans how best to reform taxes, and they will inevitably mention Ronald Reagan. In 1986 the Gipper slashed levies on earnings; the highest income-tax rate tumbled from 50% to 28%. At the same time, Reagan simplified taxes by closing loopholes and killing off exemptions. Today’s Republican presidential contenders would dearly love to repeat the trick. But they have given up a key ingredient in the recipe. The 1986 reform cost nothing, mainly because taxes on businesses went up. In stark contrast, today’s Republican tax plans are jaw-droppingly expensive.
American taxes are a mess. There are seven different rates of federal income tax, up from three after Reagan’s reform (in Canada there are four; in Britain, three). Endless exemptions and deductions cost just over 7% of GDP. These distort incentives and benefit mainly richer folk, but are hard to keep track of because their cost stays off the government’s books. Filling in tax returns takes the average non-business filer eight hours and costs $110 every year. By one recent estimate, the inconvenience costs of filing add up to 1.3% of GDP.
Source: United States http://ift.tt/1OZNIOm
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