No tax system is good for growth, of course, but the negative impact of taxation can be reduced by lowering marginal tax rate(s), eliminating double taxation of saving and investment, and getting rid of loopholes that encourage people to make decisions for tax reasons even if they don’t make economic sense.
While the general public is quite sympathetic to tax reform and would like to de-fang the IRS, there are three main pockets of resistance.
- The class-warfare crowd is opposed to the flat tax for ideological reasons. They want high tax rates and punitive double taxation – even if the government winds up collecting less money.
- The lobbyists and special interest groups also are opposed to tax reform, along with the politicians that they cultivate. The tax code is a major source of political corruption, after all, and there would be a lot fewer opportunities to game the system and swap loopholes for political support if the 72,000 page tax code was tossed in a dumpster.
- Beneficiaries of certain tax preferences such as the mortgage interest deduction, the charitable deduction, and the state and local tax deduction are worried about tax reform, either because they are taxpayers who utilize the preferences or because they represent interest groups that benefit because the government has tilted the playing field.
This post is designed to allay the fears of this third group, specifically the folks who worry that tax reform might be bad news for charities.