Friday, July 08, 2005

Robert Greenstein and Iris Lav on the Graetz tax reform plan

I suppose I shouldn't pile on, but here are a few money quotes from the very thoughtful and thorough Greenstein-Lav piece in the 7/4/05 Tax Notes concerning the effect of Michael Graetz's tax reform plan on poor households:

"Essential details related to the credit [for poorer households] and its administration are missing, raising questions as to whether the credit could actually be implemented in a manner that adequately protects low and moderate-income households and is politically acceptable."

"[H]ow is an employer to know how many children an employee has and whether an employee's spouse or ex-spouse (or a working grandparent who lives with the parent and children as part of a three-generation family) is separately claiming the family's children [as dependents]? The IRS [unlike employers, on whom Graetz relies to administer the credit] has the ability to cross-check children's Social Security numbers ..."

"Although Graetz says that the negative withholding system would be extremely simple for employers, basic nuts-and-bolts issues appear not to have been thought through or to be easily resolved."

"Graetz says in a footnote to his article that it would be 'rare for an employer to have an overall negative withholding balance' [resulting in an extra cash flow cost of hiring low wage workers with children]. That judgment, however, is impossible to make ... Graetz has not determined how large the credits would be, the percentage of workers who would receive them ... and other such questions ..."

With all due respect for Michael Graetz, whom let me state for the record that I value as a colleague in the tax field, what he has offered is really a concept, not a plan. And, in terms of evaluating it as a concept, the details that Greenstein and Lav emphasize support my point in earlier posts that it simply isn't feasible to achieve equity as between the many different types of households with earnings below $100,000, without having household-level taxes that adjust for differences in their personal circumstances.

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