The authors of this volume challenge the common perception that the removal of old distortions from the tax system would
seriously harm segments of the economy. The three essays, each of which is followed by a commentary, discuss the understatement of benefits from fundamental reform, the perniciousness of the current tax system, the distribution of benefits from reform, and the effects of reform on the housing market and on stock prices.
Kevin A. Hassett is a resident scholar at AEI. R. Glenn Hubbard is a visiting scholar at AEI and the Russell L. Carson Professor of Economics and Finance at Columbia University; President Bush has nominated him to be chairman of the Council of Economic Advisers. The authors of the essays are Donald Bruce of the Center for Business and Economic Research at the University of Tennessee, Kenneth L. Judd of the Hoover Institution, Douglas Holtz-Eakin of Syracuse University, Andrew B. Lyon of the University of Maryland, and Peter R. Merrill of PricewaterhouseCoopers. The commentators are Alan J. Auerbach of the University of California, Berkeley; William G. Gale of the Brookings Institution; and James R. Hines of the University of Michigan. This summary is adapted from the editors' introduction to the volume.
The Tax Reform Act of 1986 was a sweeping reform that lowered
marginal tax rates and broadened the tax base. Although many
economists felt that the law, given its broad bipartisan support and sound economic underpinnings, would stand for many years, events soon proved them incorrect. Significant increases in marginal tax rates were passed in 1990 and 1993; subsequent reforms have narrowed the tax base and have increased effective marginal rates in a particularly crazy hodgepodge. The tax system is now probably further from the economic ideal than in 1985, and economists are again calculating and debating the potential gains to the economy from another fundamental tax reform.