By Matthew E. Milliken
MEMwrites.wordpress.com
Nov. 11, 2015
Last month, I examined a common theme in the tax reform plans of seemingly every Republican presidential candidate: The notion that, as Donald Trump’s tax plan states, massive tax cuts for the rich can be “fully paid for by…[r]educing or eliminating most deductions and loopholes available to the very rich.”
I criticized this idea on the grounds that removing a wide swath of deductions and loopholes (part of a budget category that policy wonks call “tax expenditures”) is extremely difficult to do. Some of these expenditures, such as the mortgage-interest deduction for home purchasers, are widely popular, even though they do little to promote their intended policy goals. And some of these expenditures have the backing of interest groups that routinely spend hundreds of millions of dollars annually on lobbying, political contributions and the like.
My fear is that our next Republican president might (read: would) prioritize implementing their program of tax-rate reductions over enacting the reduction and reform of tax expenditures. That, of course, would produce a fundamentally untenable budget situation, one where the revenue loss from tax cuts would not be zeroed out by voiding tax expenditures. In this scenario, the United States would face a significant built-in annual deficit.
The ultimate result, of course, would almost certainly be radical cutbacks in government services — unless Congress and the president agreed to hike tax rates substantially. But that’s hard to do even when the two major political parties don’t have ideological differences as deep as they’ve become in the early 21st century.
I stand by what I wrote. However, I must confess that my earlier post ignored the real issue.
MEMwrites 