What will the debt deal mean for tax reform?
Instead of reigning in tax subsidies, the new deal might encourage more of them
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A basic rule of tax reform: It will go nowhere if the parties can’t agree on the ground rules. And Rule #1 is lawmakers must determine whether reform should be a revenue-raiser or revenue-neutral. Unless it can settle that issue (and it can’t), the panel is very likely to simply leave taxes out of its plan entirely.Skip to next paragraph
The Tax Policy Center is a joint venture of the Urban Institute and Brookings Institution. The Center is made up of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government. TaxVox is the Tax Policy Center's tax and budget policy blog.
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The other opportunity for near-term tax reform could come with the expiration of the Bush/Obama tax cuts in December, 2012. President Obama could use that deadline as leverage for reform and, if he laid out a bold plan, might even pull it off. But such an aggressive step isn’t Obama’s governing style. After all, he blinked when the GOP called his bluff on extending the 2001 and 2003 tax cuts last December. There is no reason to believe he’ll act boldly in the midst of his reelection bid.
It is very likely that in the end everyone will be disappointed by the debt deal. Republicans will realize it imposes far fewer spending cuts than they think. In truth, it would trim the discretionary budget in 2012 by either $25 billion or $45 billion (depending on what you want to measure it against). While this will mean painful cuts in some programs, it would reduce total federal spending by only about one percent.
After next year, all additional non-entitlement cuts would be made at the discretion of future Congresses. And those lawmakers could easily finesse their way out of the triggers and caps in this deal. Past history shows that after just a few years of budget-cutting, Congress (and the public) loses its stomach for painful spending reductions.
But as disappointed as the GOP will be in the spending reductions, nobody will be as frustrated as the tax reformers. Yet another golden opportunity seems to have slipped through their grasp.
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