Aug 20, 2013 at 12:00 pm
As OTE readers know, the tax reform trap, a term coined by my CBPP colleagues Marr and Huang, is when policy makers or ersatz budgeteers propose tax reform that calls for rate cuts now and loophole closures to pay for them later. It’s “lower-the-rates, broaden-the-base” where you nail the first part and flub the second.
As per this AMs WaPo, that’s precisely what Ken Cuccinelli is up to in his run for governor of VA, my own state! As the Post points out,
Mr. Cuccinelli’s plan consists of one sentence, plus four very brief bullet points. Grandly known as “The Cuccinelli Economic Growth & Virginia Jobs Plan,” it fits neatly onto about half a page.
…for all its brevity, [his plan] does contain one idea. By slicing business income taxes by a third and personal income taxes by 13 percent, Mr. Cuccinelli would slash $1.4 billion in revenue — about 8 percent of Virginia’s overall annual tax base.
Yet somehow — here’s where the magical part comes in — Mr. Cuccinelli insists that, under his plan, revenue would hold steady and the state’s already lean budget would be held harmless.
…squaring this circle would simply require eliminating loopholes and deductions for those who are coddled by the state’s tax code. That sounds great in the abstract, but which loopholes and deductions does Mr. Cuccinelli have in mind? Naturally, he isn’t saying.
Here’s that part of the plan, verbatim: “Identify and eliminate outdated exemptions and loopholes that promote crony capitalism.”
There it is, folks…as clear a version of the trap as you’ll find. I do not think Virginians will fall for it, especially given that the tax structure there is already regressive (see figure below) and this plan, by cutting the parts of the code that are more progressive—income and business taxes, vs. the regressive sales tax—would make the revenue system even less progressive.
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