T he Republicans’ tax bill would somewhat improve the existing revenue system that once caused Mitch Daniels (former head of the Office of Managem ent and Budget, former Indiana governor) to say: Wouldn’t it be nice to have a tax code that looked as though it had been designed on purpose? Today’s bill, which is 429 pages and is apt to grow, is an implausible instrument of simplification. And it would worsen the tax code’s already substantial contribution to “moral hazard.”
Economists use that phrase to denote circumstances in which incentives are for perverse behavior. Today’s tax code is such a circumstance, and the Republican bill would exacerbate this by expanding the $1,000 child credit to $1,600 with an additional $300 “family credit” for each parent and non-child dependent, and by doubling the standard deduction to $12,000 for individuals and $24,000 for married couples. These measures would increase the number of persons not paying income taxes and would further decrease the percentage of income tax revenues paid by low-income earners.
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