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Thursday, November 19, 2015

Osofsky Reviews Oh's Will Tax Reform Be Stable?

JotwellLeigh Osofsky (Miami), A New Tax Policy Criterion: Stability (Jotwell) (reviewing Jason Oh (UCLA), Will Tax Reform Be Stable?):

Fairness, efficiency, simplicity, and revenue-raising capability (not necessarily in that order) have long been the hallmarks of good tax policy. In a forthcoming article, Will Tax Reform Be Stable?, Jason Oh introduces a new criterion: stability. Oh persuasively argues that certain tax reform may be more or less stable than others, and contends that it is possible to analyze and predict stability. Moreover, as Oh explains, understanding stability is essential in order to determine the durability of any good (or bad) tax reform.

This article is impressive because of both its potential importance and its ambition. Oh is right, of course, that, all else equal, a reform that quickly unravels is unlikely to be as impactful as one that does not. In this regard, the article’s insights are akin in importance to the realization that taxpayers will change their behavior in response to legislation (for instance, by decreasing their sales of capital assets if the capital gains tax goes up), a realization that led to the practice of dynamic scoring of legislation. In pushing us to recognize a new dimension for evaluating tax policy, Oh has to color outside the familiar lines of existing debates. His willingness and ability to do so merits attention, and may well garner it in policymaking circles.

To be sure, this article raises many questions. For instance, the article explains that extreme policies get enacted to begin with by explaining that such extreme policies, when coupled with other reforms, are more likely to get enacted. The question, then, is how to predict what reforms will stick when they will inevitably be coupled with unknowable, future, possible reforms, and political and economic conditions. Moreover, one wonders whether the very assessment of certain policies as more or less stable is more likely to make them so. This latter point is not so much a concern about the stability analysis itself, but rather a concern about how such analysis may be used, or even manipulated in the future, just as dynamic scoring is vulnerable to manipulation. In any event, Oh is careful to acknowledge that stability analysis is not going to be precise or uncontroversial. Rather, he persuasively argues that stability should be part of the conversation.

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I have been harping for years on the inherent instability of classic tax reform. Finally someone is writing about it.

Footnote 2 at the front of Oh's paper is the most insightful explanation I have ever seen on the rapid devolution of the 1986 Tax Reform:

" It is a story of a compromise cobbled together through a mix of extreme conservative policies and extreme liberal policies. When these policies were later considered separately, there were obvious coalitions to change them."

These coalitions depend on the various legislative pivot points, as explained at
Under this theory, a policy near the middle ground is politically stable, while a policy far from the middle is much easier to change.
Oh's insight is that at least one party cannot resist the opportunity to renege on its side of the tax reform deal. Therefore each component of the deal must be in the middle ground if the reform is to be sustainable.

Posted by: AMTbuff | Nov 19, 2015 9:58:39 PM