Jon Chait Explains Why Reform Is Hard

Blog, Taxation, Ben Eisen

Jon Chait, a prolific and entertaining liberal blogger at The New Republic, has a post up today explaining why it will prove difficult to reform the American corporate income tax.  The meat of the post:

The corporate income tax has high statutory rates but, with its vast loopholes and exceptions, low effective rates. In theory, reforming it shouldn’t be hard. Every dollar of closed loopholes means another dollar of lower rates, so the winners should equal the losers. In practice, it’s extremely tricky. Suppose you redefine companies with low rates as “companies with lots of lobbying clout” and companies with high rates as “companies with little lobbying clout.” That may not be a perfect description, but it’s a reasonable approximation. So then reforming the corporate income tax means transferring money away from companies with lots of political clout toward those with less political clout.

Anybody see why this might be hard? Right.

This is helpful in understanding why it is often difficult to eliminate quirks in tax codes, government programs and policies that seem to irrationally benefit particular individuals, groups or organizations.  This problem is probably somewhat worse in the United States than it is in Canada because of differences between our political institutions. Nonetheless, Chait’s post speaks to a crucially important point in understanding why policies wind up the way they do and why many simplifying, common sense reform ideas never see the light of day.