Tax Analysts Blog

The Clintons Don’t Care About Tax Reform – And Neither Does Anyone Else

Posted on Aug 13, 2015

Hillary Clinton has plans for America – some appealing, some not -- but they all share a common thread. No, it’s not “building an economy for tomorrow” or “strengthening America’s families.” Rather, it’s their tendency to make tax reform a whole lot harder.

Consider the “New College Compact,” Clinton’s plan to make college more affordable. The candidate would pay for her initiative by limiting itemized deductions for wealthy taxpayers.

That’s an old idea put to new use. President Obama has repeatedly suggested something similar, and even a few Republicans have embraced the idea. But as Howard Gleckman has observed, these other fans of capping tax preferences have advanced the idea as a way to pay for broader tax reform. Clinton, on the other hand, wants to use the revenue generated by such a cap to advance an unrelated policy priority.

There’s nothing necessarily wrong with that -- as long as you don’t care about tax reform. Because tax reform -- individual, corporate, or a combination – takes money. If you spend the money from base broadening on something other than rate cuts, then those rate cuts (and other expensive reforms) are not going to happen.

Clinton, in other words, is eating the seed corn of tax reform. For the sake of an appealing policy initiative, she’s cannibalizing the budgetary payoff from base broadening – and making general tax reform much less likely.

To be fair, Clinton isn’t the only improvident one. Republicans, too, are eager to raid the piggy bank of tax reform in order to pay for their own needs, specifically highway construction. Some key Democrats have also signed on to this idea.

And none of this should surprise anyone, since tax reform is everyone’s favorite talking point and no one’s top priority. (Well, maybe it was Dave Camp’s top priority.)

But even in a world of halfhearted tax reformers, Clinton’s support for the idea seems especially lukewarm -- not to mention opportunistic and instrumental. She speaks the language of tax reform, but only insofar as it advances other goals. Even her plan for reforming the taxation of capital gains -- the closest thing to recognizable tax reform that she’s unveiled so far -- is yoked to a broader (and quite distinct) agenda of economic change. Indeed, her capital gains plan resembles regulation more than reform.

Ultimately, what’s most striking about Clinton's approach to tax reform is its similarity to her husband's. As president, Bill Clinton was a master of using showy, narrowly framed tax provisions to make a statement without making a difference. As my colleague Marty Sullivan has put it:

      The practice that the Clinton administration came close to perfecting is one of providing tax breaks that make excellent talking points but cost relatively little money. These are euphemistically known as targeted tax benefits. Even though they are no different from any other big-government program, enough Republicans can always be lured into going along because they can't resist anything that looks like a tax cut.
Marty is right. And maybe the Clintons are, too. If tax reform is hopeless -- and there is plenty of reason to think it is -- exploiting the elements of tax reform for more achievable ends may be smart politics.

But it’s definitely bad tax policy.

Read Comments (3)

AMTbuffAug 13, 2015

I never understood the logic of capping the percentage value of deductions. If
it makes sense to deduct an item to measure a taxpayer's available income, then
the deduction should be fully allowed. If the item does not reduce available
income, no deduction should be allowed. Either way, partial deduction makes no
sense.

edmund dantesAug 15, 2015

"Even her plan for reforming the taxation of capital games"

Was that a Freudian slip, or did Siri just misunderstand your dictation?

I concur with your general observation. Any more tax breaks targeted to higher
education are a particularly poor idea. We already have excess capacity in
higher ed, what is needed now is a way to shrink that capacity in the least
painful way possible. Propping up higher ed with still more tax breaks is the
worst possible suggestion, you are just putting off the pain and it will then
be very much worse.

We already have way too many coffee servers with bachelor's degrees.

Also concur with AMTbuff.

david brunoriAug 18, 2015

Joe, I care about tax reform. Like it or not, there is a right and wrong way to
raise taxes. The ideal remains a system based on a broad base and low rates.
But you correctly point out that citizens don't really care. And politicians
would rather use the tax code to bestow favors. It is a sad situation.

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