Tax Reform Transition: From Obstacle to Tail Wind
Background Paper No. 30
Executive Summary Tax reform transition has long been the ugly duckling of tax reform. It just does not fit within the grand debate, yet it never goes away. When tax reform picks up steam, taxpayers with transition problems become more focused on their problems than on tax reform’s promise. For tax reformers, transition threatens to bog reform clown in endless detail and political squabbling.
These complaints about the transition between an old tax system and a new one have not been answered systematically, but they can be. Handled piecemeal, transition becomes an obstacle for tax reformers and a nightmare for the economy. Handled comprehensively and guided by sound principles, transition becomes a positive force in the tax reform debate, keeping it settled squarely on the grand issues.
The grand issues in tax reform all revolve around replacing the income tax with a federal tax system more appropriate to a prosperous economy in the 21st century. This means a tax system that is fairer and simpler It means a tax system much less discriminatory against saving and investment. And it means a tax system that can be readily adapted to new developments in the structure of the national economy.