Tax Analysts Blog

“Now it's about loopholes.”

Posted on Jan 21, 2013

After a post-fiscal-cliff lull, the talk about tax reform has picked up again (here, here, and here). But we are no closer than before because of the fundamental irreconcilable differences between the parties. The President and congressional Democrats are insisting on revenues in addition to the $600 billion raised as part of the fiscal cliff deal. Republicans flatly refuse to accept this.

Republicans want to use revenues from base-broadening solely to reduce rates. Democrats want to use revenues from base-broadening solely to raise revenue. (The quote in the title of this post is from senior Obama advisor David Plouffe.)

We will never be able to begin the tax reform process in earnest until Republicans and Democrats settle their differences on the total amount of revenue the federal government can collect. It was actually Bowles and Simpson who outlined the process: First, you settle on a number for the amount of revenue you want to raise (if any). In their case the amount of revenue was $800 billion over 10 years (using a different baseline). Second, you broaden the base as much as possible. The money from base-broadening is first devoted to deficit reduction and whatever is left over is used for rate reduction.

It is disappointing that Democrats are not seriously entertaining individual tax reform that would lower rates. But at least they have specific ideas ("higher taxes on the wealthy, oil and gas companies and corporations doing business overseas ") about what tax benefits to cut (taking their cue from the last Obama budget). That specificity is something that is sorely missing from Republican tax reforms--whether you are talking about the plans from Camp or Romney or Ryan.

Read Comments (1)

edmund dantesJan 22, 2013

This is a sideshow. We'll know that politicians are serious about raising
revenue and taxing the rich when they end the tax free status of muni bonds and
start tax the investment income of billion-dollar foundations. The rest of
this is chump change.

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