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	Do We Really Need Tax Reform? Clint's Window by Clint Stretch, Director, Tax Legislative Affairs, Deloitte & Touche LLP Monday, April 8, 1996

Why are we talking about tax reform today?

Because we collect too much in taxes? No, the government collects about as much tax revenue today as it did in the 1960s.

Because we collect the wrong kind of taxes? No, we collect about the same level of taxes as our trading partners do, except they collect more in value-added taxes (a tax added to each step of the production process), and they spend more on health care.

So what is this hunger for tax reform really about?

There are several possible explanations. It could be the middle class thinks it pays too much in taxes. Another explanation: some people just hate paying taxes; others hate the Internal Revenue Service or even the entire government. The appetite for tax reform possibly is an expression of economic frustration, the concern of many that life isn't improving at the same rate it once did.

Flat tax proponents have latched onto the hunger for tax reform. They want to stop taxing savings, and tax income only once.

GOP candidates Steve Forbes and Pat Buchanan, and House Majority Leader Dick Armey, R-Texas, all present different flat tax plans as if they are purely economic programs that merely eliminate the bias against savings. If we stop taxing savings and investments, these reformers claim, the savings rate should increase. If the savings rate increases under a flat tax (an assumption that is by no means certain), the gross domestic product should increase as well.

Even assuming the flat tax works economically, is it correct socially, morally, and politically to have a flat tax? Would it really be fair not to tax investment income but still tax wage income? The government today already faces the fundamental problem that it spends more than it takes in. It is hard to see how switching to a flat tax system addresses that problem.