I really like Jonathan Chait on Paul Ryan's new go-to excuse on why Republicans can't close tax "loopholes" to raise revenues in regular budget talks -- because supposedly that would make tax reform impossible.
As Chait points out, the odds of tax reform actually happening this year are slim at best. But supporting tax reform, at least in theory, is a cheap way for conservatives to impress centrist Washingtonians.
In fact, Republicans have reserved the symbolic "H.R. 1" designation for their tax reform bill, thus making the claim that it's the centerpiece of their legislative agenda.
I have my doubts. In fact, while it is true that the House has held hearings on tax reform, I strongly suspect that tax reform will wind up exactly as substantive as the "replace" part of "repeal and replace" on ACA was in the last Congress. In other words, they'll keep promising to get to it, but never actually do it. We'll see.
Meanwhile, it's worth pointing out explicitly that Ryan's objection makes no sense at all. Tax reform, everyone agrees, means removing tax exclusions, deductions, and credits. Lowering rates is a consequence of eliminating the other treatments, but changing rates isn't in and of itself reforming; no one thinks that simply cutting tax rates counts as "tax reform." Therefore, getting rid of loopholes doesn't prevent tax reform. It is tax reform! Ryan could, I suppose, argue that removing the low-hanging fruit makes a larger bill harder, but I really don't see why. Every tax provision has lobbyists and interest groups supporting it. Having fewer provisions to eliminate means fewer people objecting to the bill.
Indeed, separating tax increases (however obtained) from the main tax reform bill would make tax reform far more likely, not less likely. Revenue-raising tax reform is basically impossible. Any comprehensive tax reform is difficult because the benefits are general and the costs specific, and usually carried by well-organized, influential groups. Add to that increases in overall revenue, and you make that equation even worse. And that's without the reality that large groups of Republicans (for better or worse) simply will not support higher revenues, even if the GOP leadership might grudgingly go along. No, if you really care about tax reform, the best plan is to divorce it from any search for higher revenues, which would mean accepting higher taxes elsewhere if you have to do it at all.
But mainly, the argument makes no sense. If you really want tax reform, you shouldn't care whether it comes all in one bill or piecemeal.
Nice catch!
It's as if Jim Leyland told the Tigers line up, "I don't want you guys to hit any home runs now; first we have to try and set up Cabrera for a chance at a grand slam later."
ReplyDeleteSounds like a winning strategy.
"Lowering rates is a consequence of eliminating the other treatments"
ReplyDeleteNo it's not. As economic policy, you absolutely could reduce deductions and leave rates the same or even raise them. The only reason lowering rates is always rhetorically linked to reducing deductions is that lowering rates is the thing Republicans actually care about and is necessary to get their votes without which reform dies.
It's not just Republicans, though. No one wants their own taxes to go up; everyone who loses deductions is going to oppose tax reform. The only way to perhaps make it pass is to get lots of people to mildly support it (since they'll get a tax cut) in order to overcome those who intensely oppose it.
DeleteI think that the Republicans are afraid to address tax reform, for fear that it might end up like welfare reform. For decades, Republicans had used the welfare issue to drive white voters to the polls. Then President Clinton offered them welfare reform. Something they always said they really wanted! They negotiated it with him, he was serious and committed, and it passed. Much rejoicing on the right!
ReplyDeleteUntil they realized that President Clinton had just taken away one of their most mobilizing issues.....
With abortion being the law of the land, they can chip and chip to prove their conservative bona fides. Once a problem is actually solved, though, things are different. I believe that this is partly why today so many Republicans have caved on gay marriage. Once they take it away as an issue for progressives, they believe, those semi-conservative gays will come back to the party.
Except in the South, of course.
The truth is that the middle class, by and large, is not paying its fair share of taxes due to all the loopholes. I know I'm not. I made $96,000 this year and only paid a few thousand in taxes--about 4%, which seems to me like a pittance, considering what I get for it. I wish there were a party who would advocate FOR taxing the middle class, but I'm not holding my breath...I think you are right, though, that Obama would be on board for closing loopholes if the Republicans were really serious about it.
DeleteDr. Bernstein, you are often simply incapable of thinking like a small government Republican. The reason Republicans do not want to give Obama additional tax increases in the form of limiting deductions without lowering rates is that we think we (the top decile of the income distribution) are already over-taxed, and we do not want to give the President more revenue so he can continue with his massive redistribution programs (such as Obamacare, the increased generosity of food stamps in the 2009 stimulus, and the continuation of extended unemployment benefits). We were compelled by the expiration of the Bush tax cuts to give the President more revenue in the fiscal cliff deal, but there is no reason to give him any more now. With no deal with the President, federal spending goes down due to the sequester and taxes do not go up. Why would conservative Republicans be unhappy with that?
ReplyDeleteAnon,
DeleteYes, but that's not what Paul Ryan is saying. He's claiming that the reason they can't limit deductions is because it would undermine tax reform. Chait's point is that Ryan is seeking support from people who wouldn't agree with the points you make here by falsely claiming that tax reform is at stake.
I agree that movement conservatives oppose tax increases of any kind. I'm just saying that it has nothing at all to do with tax reform.
Anon's point, I think, accurately reflects the thinking of small government Republicans, but it overlooks the need to address actual problems and make government function. It also overlooks the notion that ultimate beneficiaries of "massive redistribution programs" are the (still quite well-to-do) one-percenters who haven't been guillotined by enraged and impoverished mobs.
DeleteThe "still quite well-to-do" one-percenters are now paying the highest marginal tax rates since 1986, a top rate of 43.4% (the 39.6% top rate plus the extra 3.8% for Obamacare). The welfare state was certainly generous enough in 2008, but Obama added to it by Obamacare plus extending unemployment benefits for as long as 99 weeks plus making food stamps more generous in 2009. There was no guillotining by enraged and impoverished mobs in 2008, before these expansions of the welfare state were enacted.
DeleteIf Republicans ever did do tax reform, they'd want to lower rates, whether in a revenue-neutral way or revenue-positive. If they eliminate some deductions first, they have fewer targets later to offset any rate reductions. I realize this is all merely notional, but perhaps this is the underlying assumption.
ReplyDeleteFollowing on ASP, you could argue that the elimination of loopholes is something the Democrats want (even though the Republicans claim to want it, too) and that lower rates is what the Republicans want (even though the whole notion of revenue-neutral reform kind of flies in the face of the problem of structural deficits created by the Bush tax cuts). Giving in on the Democratic goal now would make it harder to get the Republican goal at a later time, and it thus undermines the prospect of tax reform as defined by the Republicans.
ReplyDelete