Coming Soon: A Dead End Tax Debate. Or Maybe Not.

Assuming some short-term deal emerges in Washington to avert a default, pending later budget talks, we all know what comes next: Another dead-end debate over taxes.

Why? Because if there's one issue that conservatives in Congress are even more implacable about than Obamacare it's taxes -- as in, no new taxes, ever. 

Of course, though, President Obama has said that he will not consider any further long-term budget cuts unless Congress also agrees to raise additional revenues. That negotiating position is eminently reasonable, given that the lion's share of deficit reduction in the past few years has come in the form of spending cuts. Now it's time to find some serious revenues. 

Conventional wisdom suggests that budget talks will get nowhere because of the impasses over taxes. But here's one faintly optimistic thought: If revenue increases come via tax reform, maybe that's something that the GOP could be pushed to swallow. 

The tax reform debate has been heating up steadily over the past six months, and seems primed to take center stage. As I've argued many times before, trimming back the $1 trillion in annual tax expenditures by the federal government offers an obvious way to find new revenues. And as I've also pointed out, many of these tax expenditures are disliked by both progressives and libertarian conservatives.

Market purists on the right aren't keen on tax expenditures that "choose winners and losers" -- say, like the housing sector via the mortgage interest deduction -- or use the tax code for "social engineering." People on the left hate the way the biggest tax breaks mainly benefit affluent households. 

All that suggests some room -- in theory, anyway -- for putting together an unlikely cross-partisan coalition of legislators ready to take a whack at tax expenditures. This doesn't get around the question of whether the end result of reform is more revenue -- i.e., "higher taxes" -- but it at least offers a way to package such revenue in an attractive fashion. What lawmaker doesn't want to boast that they got rid of wasteful federal "tax perks" for "special interests?" 

So here's hoping that when the revenue issue hits, tax reform will offer a glimmer of hope that compromise will be possible. 

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