We Can All Do Better by Bill Bradley Page A

groups will be appreciative and return the favor in either votes or campaign cash.
    The narrower the loophole, the more likely, once it becomes law, that it will remain hidden in the 72,536 pages of the tax code. My favorite story is about the loophole that allows you to rent out your home for up to two weeks and pay no tax on the rent. When I asked how it got into the code, I was told it was the work of Herman Talmadge, the long-serving Georgia senator. Evidently he was petitionedby a few wealthy homeowners near Augusta National Golf Club, which hosts the annual Masters tournament; they wanted to rent out their mansions to other wealthy people who were coming to the Masters. Talmadge accommodated them, and the provision is still in the law. Without a superb tax attorney, no one would know it exists, but the wealthy have superb tax attorneys.
    It seems to be a law of nature that whenever you eliminate loopholes, they always seem to return. In 1986, we cut the top individual tax rate from 50 to 28 percent and paid for it by eliminating loopholes used by the wealthy to reduce their taxes, including the exclusion for capital gains. The result was that profits from the sale of capital assets were taxed at the same rates as income from wages. Within months of the Tax Reform Act of 1986 becoming law, lobbyists were advocating for the exclusion’s reinstatement. I told them that if they succeeded, the top rate would inevitably rise to pay for it. They were not dissuaded. Capital gains taxes were cut to 20 percent, and the top rate went to 39 percent. The return of loopholes after passage of tax reform is like letting moths get into the closet and chew holes in your brand-new suit.
    We can have an income tax system that has lower rates and fewer loopholes and brings in enough revenue for substantial deficit reduction. We can do this by eliminating loopholes and using some of the resulting revenue for a combination of deficit reduction and taxrate reduction. An alternative approach would be to raise the gasoline tax or institute an oil-import fee, with some of the money going to deficit reduction and some toward income tax or Social Security tax reduction or investment in infrastructure. If you increased the fuel-efficiency standard for cars to fifty miles per gallon, reinstated the cash-for-clunkers program, and phased in a one-dollar gasoline tax increase over ten years, citizens would end up a decade from now paying less for gasoline than they do today.
    A third option would be to create a value-added tax and use some of the revenue for deficit reduction and some for credits that would reduce the tax’s burden on low- and middle-income people. In an economy where 70 percent of our GDP, in good times and bad, comes from consumption, this tax would guarantee the long-term fiscal health of the United States, just as it has in Canada since 1991.
    A fourth alternative would be to cut corporate taxes and raise the top marginal individual income tax rate. This would encourage companies to keep jobs in America and would increase the progressivity of the tax code. In Denmark, for example, the top corporate rate is 25 percent versus our top corporate rate of 35 percent, and the top individual rate is 51.5 percent versus ours at 35 percent. Cutting corporate taxes would make American companies more competitive overnight. I know the CEO of a large multinational company who moved his company abroad to save paying our top corporate tax rate. The company saved $50 million that year, which he kept abroad. “I’d rather pay a lower rate in the United States,” he told me, “and use that $50 million to hire U.S. workers.”
    A final alternative would involve neither income nor consumption taxes. It would tax financial transactions. There are more than 8 billion shares traded daily, largely controlled by computers. If each trade had to pay a minuscule tax, it would raise hundreds of billions of dollars each year to reduce