Matt Yglesias raises an important point here about conservatives who can’t abide any increase in tax rates but will entertain raising more tax revenues through reductions of tax expenditures–that cool trillion or so we forgo in tax revenue each year through various favored activities in the tax code, like the mortgage interest deduction or the exclusion from the tax base of employer-provided health care.
I was recently on a tax panel with some prominent conservatives and at some point in there they too said this was an acceptable way to raise some much need gov’t revenue.
Totally agree with Matt that this is a potentially positive development–it puts revenues (not just spending cuts) where they should be, i.e., on the table. But let me also count the ways in which it makes me nervous.
–like Matt says, this can’t be a substitute for higher rates, and on that point, conservatives are united and wrong.
–conservatives who accept this idea generally don’t want to solely raise more revenue by closing out tax expenditures; they want to “broaden the base and lower the rates.” That means they want to give some of the revenue they raise by cutting these expenditures back to the taxpayer through lower tax rates. That may be fine and just, but how much? If you take the rates down “too far”–which anyone paying attention will agree is a plausible risk–the gov’t could end up with very little revenue out of this deal compared to, say, higher rates on families above $250K as in the Obama plan.
–Taking back tax expenditures is MUCH harder than a lot of folks make it sound. It sounds benign but in fact, somebody loses, and when somebody loses in this town these days, it’s a lot more likely to be the shallow pockets as opposed to the deep ones.
So forgive me if I fear for the recipients of the Child Tax Credit or the Earned Income Credit, both of which tend to benefit lower income families, much more than I fear for recipients of higher end credits, like mortgage interest or capital gains exclusions.
If you like lots of numbers, take the time to learn more about these expenditures. Go to the Tax Expenditures Spreadsheet on this page.