The lead editorial in this morning's New York Times perpetuates a myth that has become a needless sticking point in the current budget debate. It states:
If Mr. Boehner had used a calculator, for example, he would have discovered it is impossible to produce $800 billion in revenue from eliminating deductions without severely curtailing the deduction for charitable donations, which is vital to the nonprofit sector.
Well, perhaps if you arbitrarily limit the set of tax benefits you are willing to cut to itemized deductions, it would be difficult to raise $800 billion over 10 years. But there are a lot more tax breaks out there than itemized deductions (most notably, the biggest tax expenditure of them all, the exclusion for employer provided health insurance). A recent high-profile TPC study (that famously showed revenue neutral base-broadening could not pay for 20 percent rate cuts) also shows (Table 3) that limiting tax expenditures on those over $200,000 would raise more than $120 billion a year. And since that figure assumes rate cuts of 20 percent, this base broadening would raise 20-25 percent more than $120 billion if the top rate stays at 35 percent. Moreover, this figure does not include any increase in capital gains rate or increases in estate taxes (both proposed by the Obama Administration).
Yes, it will be politically impossible to massively cut tax expenditures for the wealthy. But it is mathematically possible and if done right could be better economics. If the Republicans are insisting on not raising rates AND agreeing to have tax increases fall exclusively on the wealthy, why don't Democrats simply let the Republicans float their plan for base-broadening without rate hikes?
Tax Analysts Blog
Democrats Needlessly Insisting on Rate Hikes
Posted on Dec 4, 2012