Do we all agree? Tax breaks add to the deficit.
Policymakers from both parties are starting to come up with the same solution to reduce the deficit: End tax breaks.
As David Callahan writes on Huffington Post (emphasis added):
Such steps [to broaden the tax base by reducing tax preferences, or "tax expenditures"] would command support from an unusual cast of characters. Many fiscal conservatives dislike offering a plethora of deductions in the tax code because it uses the tax system for “social engineering” and — in regard to corporate taxes — puts the government in the business of picking winners and losers. Meanwhile, progressives don’t care for key individual tax breaks because they mainly benefit high earners. Also, of course, progressives hate the billions in tax breaks given to oil companies and other corporations.
All in all, it is possible to imagine a bipartisan deficit reduction deal in which large new revenues are raised by closing loopholes. That is clearly where some members of the Gang of Six (now five) have been for weeks. Last month, Republican Senator Tom Coburn [the departing gang member] said on Meet the Press that he would favor a “net” increase in revenue if it didn’t raise tax rates.
It is even easier to imagine that scenario after a television appearance yesterday by Senate Minority Leader Mitch McConnell, who said that Republicans were dead set against higher tax rates. As reported by CNN.com: “Chris Wallace of Fox caught the distinction and asked McConnell if his language indicated he was open to collecting more tax revenue by ending some subsidies and loopholes. McConnell deflected the question, saying he wouldn’t negotiate a deal on the program.”
Maybe I’m naive, but that sounds like a clear signal that at least Senate Republicans would go along with a tax reform plan that raises revenue.
And incidentally, the Tax Policy Center’s Donald Marron has an excellent column on this very issue in this week’s print edition of the Christian Science Monitor–available online here–where he explains:
Here’s a shocker: America can cut government spending by eliminating tax breaks.
I know that sounds crazy. Everyone usually talks as if spending and tax breaks are distinct. Spending is what the government gives out or uses for purchases; tax breaks reduce how much revenue it collects.
Reality, however, is a lot blurrier. Hundreds of billions of dollars of spending are disguised as tax cuts.
It’s not hard to see why. Voters like tax cuts more than spending increases. Politicians understand that, so they convert spending into tax breaks.
I truly believe that, at least eventually, more policymakers from both sides of the aisle and both houses of Congress–and even the guy down on the other end of Pennsylvania Avenue–will discover that reducing tax expenditures are their favorite way, not just to reform the tax system, but to reduce the deficit. In other words, they will have to come around to the idea of reforming the tax system, not just to make the system more efficient and/or fair in raising any old amount of revenue (usually “constant” is the preferred tax reform goal), but the most efficient and/or fair way to raise a higher amount of revenue and reduce the deficit. Not that this will be a pleasant thing to do, especially when politics are involved, but I really doubt the politicians can find a surer, more efficient, and fairer way to (actually and substantially!) reduce the deficit with any other type of spending cuts.
Eventually almost everyone–or at least a majority–will come around to the fact that although we’d rather avoid tax (revenue) increases and keep believing in painless solutions (which don’t really exist), deficit reduction that’s achieved through base-broadening tax reform that reduces “tax entitlements” sure seems quick and easy compared with the alternative of cutting the other big entitlement programs–namely, Medicare/Medicaid and Social Security. (In the video clip above, McConnell clearly distances himself from the Medicare/Medicaid cuts as spelled out, more than elsewhere at least, in Paul Ryan’s plan.) Don’t get me wrong: At least some degree of those other tough choices over the other big entitlements will have to be made, too, but those are changes that will materialize only over the much longer term and with a much greater degree of uncertainty, and frankly, we don’t have a lot of time and money to spare. It sure would be good to actually “get somewhere” with deficit reduction over the next five to ten years.
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