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Speaker Paul Ryan: The next president’s tax plans must get past him (Office of Speaker Paul Ryan)

One virtue of the Clash of the Pygmies that constituted the late, unlamented battle for the presidential nominations of America’s two major parties was that it reminded us that tax policy is less about merely minimising the hissing of the plucked geese than it is about the macroeconomic performance of the economy and what is called “fairness”, or “equity”.

Indeed, tax policy is probably the most consequential weapon available to policymakers to address three major problems facing the US. First, the American economy continues to limp through a painfully slow recovery, with first-quarter growth measured at an anaemic annual rate of 0.5 per cent. But, second, monetary policy is more or less exhausted: zero interest rates and printing money have helped to avoid disaster, and the negative interest rates adopted by other central banks are proving themselves a damp squib. Third, the debate about the distribution of the proceeds of the American market-capitalist system has reached fever pitch and is calling into question the ability of the system to treat the citizenry fairly. A sensible tax policy could contribute to the solution of those problems: by developing an acceptable balance between achieving growth that will sustain full employment without triggering an unacceptable inflation rate, and by sharing the burden in a way that maintains citizens’ support for market capitalism.

Over the years the US tax code that candidates propose to “reform”, i.e. to amend to suit their broader purposes and those of their constituents, has become a Christmas tree, festooned with tiny baubles that appeal to small groups of voters, and under which lie large parcels: gifts to hedge fund operators (treatment of some of their income as if it were lower-taxed capital gains); to corporate donors (the oil depletion allowance, write-off of R&D, deductibility of interest payments); and to significant voting blocs such as homeowners and charitable givers (mortgage and gift deductibility, respectively). The appetites of recipients of these gifts are increased by what they feed on, as anyone who has tried to end the passing of the cost of exemptions onto other taxpayers has found out. Recipients of special favours know who they are and will fight to hold onto them, while the ordinary taxpayers who have to make up for the cost of favours won by others are diffuse, each with an insufficient stake to make a serious fight for fairer treatment.

Hillary Clinton, barring and perhaps even despite an indictment for her casual attitude towards the national security secrets with which she was entrusted as Secretary of State, will carry the Democratic, progressive banner. She has seen off socialist Bernie Sanders, in part by lurching left to accommodate the young, affluent student backers whose deep study of history has led them to conclude that a socialist “revolution” — Sanders’s term — will somehow benefit them. Her proposal is best characterised as keeping with the progressive tradition of tax-and-spend and government enlargement.

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