Derek Thompson: The Tax Code is a Horrible Mess

Derek Thompson at The Atlantic (who has a relationship with our colleagues at the Committee for a Responsible Federal Budget) has been running a very cool and informative series on the tax code this week (which happens to be in conjunction with the federal tax deadline, coincidence? I think not…)

The latest installment is particularly interesting from my perspective, as he takes a variety of complaints about the tax code issued from across the political spectrum and points out the ways in which they’re interrelated.

The nut, IMO:

What happens when you run social programs through tax breaks in federal income tax code? Three things happen. First, you have to offset more breaks with higher rates, which makes some people angry. Second, the majority of the benefits accrue to the rich, which also makes people angry. Third, to maintain the progressivity of the tax code, you have to make some tax credits refundable, which wipes out the income tax burden of tens of millions of households, which makes yet more people angry!

The solution to this quandary — after “ask everybody to stop being angry” — is to stop shoveling our hard decisions about social policy and welfare into the tax code.

Read and look at (and here’s something I really like about Derek’s work, when I say look at, I mean LOOK AT, the guy finds and uses great visuals) the whole thing.

In even fuller disclosure, I especially like this piece b/c he nods to our recent Assets Report 2012 and the infographic that turns dry numbers into a narrative about real world impact. One quibble though, Derek accurately notes:

Tax spending, especially for retirement and housing, turned out to be regressive, so that rich got most of the money. Meanwhile, direct spending on programs like education turned out to be progressive. One implicit conclusion of the report was that human capital investment programs are more likely to progressive if they are spending by government, not “spending” by the tax code.

The key piece of context from our work that should be included there is that regressive spending through the tax code absolutely dwarfs progressive, direct spending programs on asset building. The final tally is $508 billion to $40 billion. For comparison’s sake that’s the same margin of victory that Barca had when they played my beer league soccer team.