Americans won't give up tax breaks? Bribe them!
Offering temporary tax breaks to cut down permanent ones could be a way to 'bribe' taxpayers to give up tax breaks.
Sensible budget wonks of all political stripes understand that a solution to our looming budget crisis will require more tax revenues. The aging of the baby boomers and rising health care costs will push up government spending. Yes, I know that we have to slow the growth of health spending and we definitely should look for wasteful or ineffective programs to cut, but spending will go up.Skip to next paragraph
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Of course, not a single House Republican is willing to publicly acknowledge this obvious fact. They’re all in the thrall of Grover Norquist’s no-tax pledge, which Lori Montgomery reported he dreamed up as a 14-year-old boy. Fact is, most of the ideas that pop into the adolescent male mind would be a poor guide for public policy and none more so than “the pledge.” Then again, male politicians of both parties seem particularly prone to adolescent behavior. (But there are 24 Republican women in the House. Surely, they’re immune to male adolescent fantasies…)
But I digress.
As Lori discusses, at least in the Senate, some Republicans are open to the idea of cutting “tax expenditures” – the tax credits and deductions designed to subsidize particular activities. In fact, just yesterday, the senate, including most Republicans, repudiated Grover by voting to end ethanol tax breaks. It’s a small step, but suggests that perhaps the dark lord’s death grip on sensible budget policy is weakening.
Cutting tax expenditures is appealing because revenue would rise without requiring higher tax rates. Conservative economist Marty Feldstein has proposed limiting the value of tax expenditures to 2 percent of income. Since the value of tax breaks tends to rise with income, the proposal would be progressive. And it would raise a lot of revenue. Feldstein estimated that a fairly comprehensive cap could cut the deficit by almost half over time.
The obvious problem with cutting tax expenditures is that people like their tax breaks. They include popular items like the mortgage interest deduction, tax-free health insurance, and the charity deduction.
Another problem is that even if voters could somehow be convinced to support big cuts, raising taxes (or cutting spending) significantly right now could thrust the fragile economy back into recession.
There may be a solution to both challenges. We know that Americans are impatient. Why not bribe them to give up their tax breaks? For example, suppose that individual income tax breaks are worth about 10% of adjusted gross income. (This is probably not a bad approximation, but I haven’t crunched the numbers.) It’s unrealistic to assume that all could be eliminated, but we might be able to cut the cost of tax expenditures by half. (See the Bipartisan Policy Center plan, which I helped craft, as an example of how to do this.)