'Fiscal Cliff' Compromise Is a Bad Deal, UVA Law Tax Policy Expert Says
University of Virginia law professor and tax policy expert George Yin says the "fiscal cliff" deal will hinder economic improvement, "pretty much kills" any hope for tax reform, and fails to reform entitlement spending.
The measure approved late Tuesday to avert the so-called "fiscal cliff" is a bad deal, according to University of Virginia law professor and tax policy expert George Yin.
"On a scale from one to 10, with 'one' meaning 'horrible,' this bill is a zero," said Yin, who was chief of staff of the U.S. Congress' Joint Committee on Taxation from 2003-05.
The deal maintains tax cuts for most Americans, allows taxes to increase on household income over $400,000 for individuals and $450,000 for couples, and prevents sizable cuts for defense and other federal spending.
Yin, the Edwin S. Cohen Distinguished Professor of Law and Taxation and Thomas F. Bergin Teaching Professor, detailed his objections to the measure:
"The bill makes worse the most immediate economic problem of the country — slow growth and high unemployment. It allows payroll taxes on almost all workers to increase without providing any immediate and offsetting benefit/stimulus.
"The bill exacerbates the most serious intermediate/long-term economic problem of the country — the need to achieve some degree of sustainability in the government’s fiscal promises as the large group of baby boomers retire. Although the bill allows tax rates to rise on a tiny sliver of the population (less than the top 1 percent), it permanently locks in lower rates for everyone else without any offsetting changes in tax or spending policy. This tax structure is not sustainable, and increases the likelihood of a rude and harmful shock to the economy and the country down the road.
"The bill completely punts on any spending reforms, including reform of the entitlement programs. It ensures a continued slow, drawn-out fight on those issues with new fiscal cliffs in the immediate future, pulling legislative attention away from other important national priorities, guaranteeing that debate on those priorities will be more toxic, and maintaining uncertainty for the country.
"The bill pretty much kills any hope for tax reform. Tax reform was always very unlikely because the legislative effort would have had to reform the laws and increase revenues, an extremely challenging combination. The only possible sweetener in tax reform was the promise of lower income tax rates. Now, with lower tax rates provided permanently to over 99 percent of the country, the sweetener has already been given away. Barring some national calamity, there is absolutely no reason for the vast majority of the country to get behind any serious tax reform effort.
"Finally, the bill is filled with pork. It demonstrates yet again that the only way this administration and Congress can reach agreement on fiscal issues is to hand out benefits (in the form of tax cuts or spending increases) to as many people as possible. There was not a single tough decision made in this bill. It pretty much guarantees that any significant change in the fiscal policy of the country will occur only after a disaster of some sort, which could be extremely harmful to the nation. Decision-making following a disaster also does not generally produce thoughtful solutions."