A FAIR, SIMPLE, AND PRO-GROWTH TAX REFORM

In any serious discussion of tax reform the relative roles of the politician and the economist need tobe examined. I know that some theories of public choice take a rather dim view of politicians, and perhaps not without reason—just as many people today take a rather dim view of economists. But we cannot dispense with politicians, any more than we can dispense with economists. What we need are politicians and economists who are better at understanding and deal-ing with reality. I would like to suggest that this requires us carefully to observe the limits of pure theory. Economic or political theory is a more or less useful abstraction from the lives of real people. But each abstraction takes us further away from that concrete reality, For example, general equilibrium theory, useful as it is, has no role for the entrepreneur; in the same way, some public choice models have no role for the entrepreneurial politician. It is the economist’s job to determine what is desirable and achievable from the point of view of economic policy; it is the politician’s job to determine, with the help of experts from other fields, what is desirable and achievable from the point of view of social policy; and we need everyone work-ing together to come up with the best tax reform plan. No single perspective is enough. I offer this caveat for the following reason. Last year in testimony to the Senate Finance Committee, I commented at some length upon what I consider a remarkable fact about federal tax reform. In the world oftax economists, there are two competing consistent theories of tax reform—the comprehensive income tax, and the consumption tax. Each ofthese theories has been workedout in considerable detai