As President Bush begins his push to revamp America′s tax structure, a former Treasury official who was a key player in the 1986 overhaul offers a word of warning: if policymakers think fixing Social Security is hard, wait until they try reforming the tax code.
Eugene Steuerle, co-director of the Urban-Brookings Tax Policy Center and former deputy assistant secretary for tax analysis in the Treasury Department, writes in the latest issue of The Milken Institute Review that reforming the tax code while trying to reduce record deficits, create individual Social Security accounts, make previous tax cuts permanent and slow spending in such areas as defense and Medicare will test even the most skillful political leaders.
"Throwing out the tax code may sound fine in a sound bite," writes Steuerle, who brainstormed the 1986 tax reform bill. "But policymakers still have to decide what to do with federal programs for housing, work, education, retirement, charity, energy, environment, transportation and all the other policies now largely implemented through the tax code."
Despite many political and financial roadblocks, Steuerle says eventually something will have to be done to simplify the code.
"At some point, reform will become more viable than the alternatives," he writes. "The best hope for reform is probably the ill-will created by the complexity and increasing bite of the alternate minimum tax. Indeed, that tax could be the horse on which the broader package rides."
Also in the 1st Quarter issue of the Review, Robert Stavins, professor of business and government at Harvard′s John F. Kennedy School of Government, says the Kyoto Protocol on global warming is in deep trouble, but thinks nations such as the U.S. could come on board under a framework based on sound science and economics as well as realistic politics.
"At a minimum," he writes, "the structure has to include a means for making the pact truly global, a realistic time path for implementation, and a sensible system of market-based incentives for keeping costs under control."
Other highlights from the Review:
- John Donohue of the Yale Law School proposes a variety of initiatives to lower crime in the United States. Among his proposals: stop the prison building boom ("we cannot expect to get much more crime reduction at reasonable cost by increasing the numbers behind bars"), put more cops on the street ("the optimal level is almost double the number we have today") and adopt sensible gun control (not, he conceded, "an easy political sell in today′s America").
- Zvi Bodie, professor of finance and economics at Boston University School of Management, says the nation′s private pension plans — and the federal government′s Pension Benefit Guaranty Corporation — are in trouble. The fix, he says, is fairly simple, although by no means politically easy: "Require plan sponsors to cover the future pension benefit promises they make to employees by investing in bonds. ... Assuming that it survives the transition, the PBGC need never face another crisis."
- Sheldon Danziger of the Gerald R. Ford School of Public Policy at the University of Michigan, and Rucker Johnson of the Goldman School of Public Policy at the University of California (Berkeley) offer an update on the consequences of the eight-year-old welfare reform law. "The 1996 welfare reform did reduce the welfare rolls and did increase the proportion of poor women who work. However, too many single mothers work full-time, but remain in poverty and without health insurance."
- Robert Hahn, executive director of the American Enterprise Institute-Brookings Joint Center for Regulatory Studies, and Paul Tetlock, a professor of finance at the McCombs School of Business at the University of Texas, offer a plan for using advanced information markets to improve public policymaking. "Firms ranging from Hewlett-Packard to Microsoft to Goldman Sachs are experimenting with information markets in making business decisions. These markets could improve the quality of information on which government bases decisions, as well as make politicians more accountable to the electorate."
- Milken Institute economists Ross DeVol and Lorna Wallace assay the importance of intellectual property, especially to the growing biotech industry, in maintaining America′s technological edge. "The failure to protect intellectual property rights, to fund basic research in controversial areas, to do what is necessary to attract bright foreign students in the field, or to facilitate rapid diffusion of scientific knowledge could cost America its leadership role."
This issue includes an excerpt from Innovation and Its Discontents: How Our Broken Patent System Is Endangering Innovation and Progress, and What to Do About It, by economists Adam Jaffe of Brandeis University and Josh Lerner of the Harvard Business School, and a Charticle by Institute Senior Fellow William Frey, who finds the future election battle in the U.S. will not be between blue and red states, but between New America and Old America.
The Milken Institute Review is distributed to some 10,000 corporate and financial executives, policymakers, academics and journalists throughout the world. Its editor is Peter Passell, former economics columnist for The New York Times.