What Drives Tax Policy Choices?

Economists have put forth many specific tax design recommendations over the years, both for piecemeal changes to the tax system and for more fundamental reforms. These recommendations have typically been timely, plausible, and even elegant, and they often have had widespread agreement among economists, even those of greatly differing political sentiments. However, many -- indeed perhaps most -- of these proposals have gone nowhere in the actual policy implementation stage. Why is this? I argue here that the main reason for this lack of impact is politics -- and a failure by economists to consider fully the central role of politics in policy making. Of course, all policy changes in democracies, including those that involve taxes, necessarily revolve around political considerations by elected politicians as policy makers. However, my argument goes beyond this obvious truism. Instead, I emphasize one specific aspect of politics: Who gains and who loses from a tax policy change? I argue that these are the types of political considerations that are decisive because it is the distributional effects of policies that determine how people vote and so that also determine how their elected representatives vote. I illustrate these points with a brief -- and a deliberately selective -- history of what I term 'clever' policy recommendations made over the years by major figures in the broad field of public economics and the narrower field of taxation, I then discuss the many possible reasons for this lack of policy impact, and I identify the factor that seems most likely to drive actual tax policy choices -- the effects of tax policies on the winners and losers of the policies, as determined by broadly defined 'distributional effects'. I finish with a discussion of the ways in which economics -- and other disciplines -- might more productively contribute to the policy discussion. Along the way, I indicate the ways in which the chapters in this volume contribute to the ongoing policy discussion.