Bad Breaks: Tax Perks Neither Party Should Like
A long overdue debate on tax reform is now underway. Yesterday, White House aides said they hoped to pay for the President's $450 billion jobs plan by sharply limiting tax deductions for upper income Americans.
Some Republicans immediately jumped on this idea, with a spokesman for House Speaker John Boehner saying that “It would be fair to say this tax increase on job creators is the kind of proposal both parties have opposed in the past."
No surprises there, except if you happen to take conservative tax ideas seriously. One familiar axiom of such thinking is that the tax code should be greatly simplified and purged of various loopholes. You can find calls for simplification in any number of right-wing blueprints for fiscal policy -- for instance, the Heritage Foundation's big plan for balancing the budget.
One obvious way to simplify taxes is toss the Schedule A form, with all its deductions, out the window. The White House may not be suggesting this yet, but there are hints of such thinking here.
Another favorite conservative argument is that the government shouldn't be in the business of "picking winners and losers" through the tax code. And, of course, the plethora of deductions available to both individuals and corporations does exactly that. The mortgage interest deduction, for example, is a boon to the real estate industry, while deductions for 401ks and employer-provided healthcare shovel serve as fat public subsidies to the financial and healthcare sectors. (We'll leave the corporate Swiss cheese code for another day.)
If the White House is really thinking seriously about creating a more simplified and neutral tax code, Republicans in Congress should keep an open mind and hear them out. Progressives should be happy with this direction, too, since the Administration is explicitly talking about limiting deductions for affluent filers -- zeroing in on the single biggest flaw with all the deductions in the tax code, which is that these perks favor wealthier Americans who itemize their taxes.
I have said it before here and I'll say it again: Tax reform offers a rare chance for both parties to work together to get something big done. Each side dislikes the tax code for their own reasons -- conservatives because of its complexity and distorting effects and progressives because the code favors the wealthy and doesn't tax bad things like pollution. So why not junk the whole system and pull in new revenue along the way.
Yes, I know this is easier said than done. Lobbyists will go into feeding frenzy and conservatives will insist that reform be revenue neutral, which undermines a key appeal of such reform in the first place.
But, look, neither party benefits from the widespread public view that Washington can't solve any problems. Both can benefit from reforming the tax code. And now's the time to start that work.
