A great panel discussion today at National Journal Live

I was pleased to participate in today’s policy summit discussion on tax reform sponsored by National Journal Live.  Senator Ron Wyden (D-OR) and Rep. Peter Roskam (R-IL) opened with a keynote discussion with an insiders look on tax reform proposals on Capitol Hill.

I participated in the expert panel discussion along with Scott A. Hodge, President, Tax Foundation, Elaine Kamarck, Ph.D., Lecturer in Public Policy, Belfer Center for Science & International Affairs, Harvard Kennedy School and Martin A. Regalia, Ph.D., Senior Vice President for Economic & Tax Policy, Chief Economist, U.S. Chamber of Commerce.

I reinforced the importance of pro-growth tax policy to help encourage and stimulate savings and investment again.  Unlike many other countries, the current U.S. tax codes provides many disincentives to investment and capital formation that are needed to spur growth and create jobs.  I reminded the audience of the events that led to the historic 1978 capital gains tax cut–a down economy, populist uprising and an administration that wrongly views capital gains as a benefit for “fat cats.”  An effort led by President Carter to raise capital gains taxes was overturned by a bipartisan coalition that recognized the importance of lower capital gains rates to stimulate growth.  The dynamics are very similar today.

I agree with Senator Wyden, the one policy option not yet tried to achieve economic growth is tax reform. Although most of the tax reform talk today is about lower rates, equally important is shifting the tax base from income to consumption.  Thus, don’t pay for lower individual tax rates with higher taxes on capital gains and dividends or cutting back on IRAs, Keoghs and 401(k).  Don’t pay for lower corporate tax rates by lengthening depreciation or eliminating other current provisions which reduce the cost of capital.  Yes, look at consumption taxes to pay for lower tax rates and reduce the deficit once spending has been reduced as much as possible.

There is a consensus among mainstream economics that a flat consumption-based tax system would facilitate great economic growth over an income tax structure and of course be a tremendous improvement over our current bankrupt system.  Mainstream economist Allen Sinai analyzed the impact of lower and higher capital gains taxes with his microeconomic model  A zero capital gains tax would result in an average increase of 1,322,000 jobs annually at a cost of $18,000 a job  compared to a very conservative estimate of $92,000 a job from the recent stimulus program.  Conversely, an increase from the current 15% to 20% capital gains tax rate results in an annual decrease of 231,000 jobs.

You can watch today’s event here: