Tax Reform

2/21/2013 05:00:00 PM
I was struck by this quote from Congressman Paul Ryan:
"[T]aking tax loophole[s], what we've always advocated is necessary for tax reform, means you're going to close loopholes to fuel more spending not to reform the tax code. [...]
"[I]f you take tax loopholes to fuel more spending, which is what they're proposing, then you are preventing tax reform, which we think is necessary, to end crony capitalism and to grow the economy."
Ryan's being disingenuous when he says "fuel more spending" when in fact the Democrats merely want to pay for spending that has already happened--government spending is down, down, down under Obama. Here's the thing: both the Democrats and Republicans agree that we should eliminate most, if not all, tax deductions and loopholes. So why doesn't it happen?

I suppose that depends on what your priors are. But think about it this way: if a stand alone bill to eliminate the deductions and loopholes came up for a vote today, the Democrats would vote for it, and the Republicans against. Why? Because Republicans won't agree to close loopholes unless all of that revenue is used to lower tax rates, specifically tax rates on the rich.

Democrats, for their part, don't have any special opposition to the idea of  reducing tax rates. But, to maintain historical levels of spending, they recognize that tax revenues have to rise, one way or another. So they would vote against revenue-neutral reform because Republicans will never agree to raise any tax rates in the future to finance current levels of spending.

This is an interesting lesson on why agreement on a policy particular--the need to eliminate tax deductions--is not a sufficient condition for legislation.