Tax Analysts Blog

Republicans Have Abandoned Tax Reform. Because Grover Told Them To.

Posted on Sep 14, 2010

What are the prospects for old-fashioned tax reform — trading lower rates for a broader base? During an inteview on NPR yesterday, I touted the old mantra as the best sort of tax policy. But I have to admit, its political viability seems dubious, at least in an era when Grover Norquist calls the shots for GOP candidates.

The New Republic's Jonathan Chait seems to agree. In a review of Alan Viard's new piece on the Bush tax cuts, he bemoans the state of GOP thinking on tax policy:

    Moreover, while I disagree with Viard about the incentive effects of upper-bracket tax cuts — I think the impact is extremely minimal — I do think you could usefully reduce upper-bracket taxes rates in a way that wouldn’t impact either the progressivity of the tax code or the deficit. You’d simply have to compensate for the lower tax rates by closing tax loopholes. But the Republican Party, as opposed to a few academics loosely affiliated thereto, is much less interested in the theoretical benefits of tax rate reductions and much more interested in policies that simply increase the after-tax income of the very rich, so the point is moot.
Depressing but accurate, I think.

Where have all the responsible Republicans gone? Have they been killed off by the likes of Grover Norquist? Here’s an interesting tidbit from the Ohio governor’s race:
    [John] Kasich critics also noted that although Kasich [the GOP nominee] has signed a pledge sponsored by Washington-based Americans for Tax Reform “to oppose and veto any and all attempts to increase taxes,” he told The Dispatch that he doesn’t think eliminating a tax loophole is a tax increase or violates the pledge.
    Grover Norquist, president of Americans for Tax Reform, told The Dispatch yesterday that any move to close tax loopholes would be a tax increase and a violation of the pledge without offsetting tax cuts of equal value.
    [Kasich spoesman Rob] Nichols said Kasich understands the pledge and won't violate it because "he is not going to raise the tax burden on Ohioans."
Amazing. Truly amazing. Closing a loophole — no matter how egregious, cynical, or morally dubious — is a violation of GOP dogma, as defined by Grover “Drown-Government-In-a-Bathtub” Norquist.

Unless, of course, you “pay” for it by creating another loophole for someone else. Since that new loophole would be a tax reduction — for some lucky slob — it would presumably get the wayward Tax Pledger off the hook. Better yet, create two or three new loopholes, maybe for some of your best friends and campaign contributors. Then you’ll get to close a loophole and actually “cut” taxes. All without having to make any hard choices at all. (Except maybe deciding who gets the special favors in this round of Raid-the-Fisc.)

In Grover's book, a tax hike is a tax hike is a tax hike. Any revenue increase is a violation of Republican Holy Writ. The corollary: a tax cut is a tax cut is a tax cut. Any revenue decrease is a good thing. Hand out a favor to some of your best buddies and campaign contributors, and you can legitimately claim to have cut taxes. And, of course, avoid the Wrath of Grover.

Tax reform, in the Grover world, doesn't involve trading a broader base for lower rates. It means trading one set of special interest loopholes for another set of special interest loopholes. A nice deal, if you're a political cynic or nihilistic government-hater.

Read Comments (1)

Joseph J. ThorndikeSep 15, 2010

Bill, thanks for the comment. Look, I'm all in favor of closing loopholes and using the additional revenue to lower marginal rates. That's good old-fashioned tax reform, and you can count me in.

But here's my beef with Grover and his pledge: By only allowing loophole closing when its revenue neutral, Grover implicitly accepts the legitimacy of the loophole itself. Grover's pledge forbids the elimination of even the most egregious tax favoritism, unless it's balanced with a tax cut elsewhere. That's ridiculous.

For instance, what if lawmakers were "shamelessly handing out cash to filmmakers" in the form of special tax credits designed to bring Hollywood to the heartland? Wouldn't getting rid of those credits be a good thing? Or does closing that loophole only become good, desirable, and (in the Grover universe) permissible when it's balanced by some sort of tax cut elsewhere in the revenue system?

When denocuning the Iowa film tax credits, the Tax Foundation didn't require any such revenue-neutral trade. (Sorry, for technical reasons I can't link to Mark Robyn's August 31 blog post on the subject.) As you rightly point out: "Film tax credits are yet another example of a politically well-connected special interest group securing subsidies for itself at the cost of the rest of the state's taxpayers and businesses." Stamping out those subsidies is always the right thing to do. Lawmakers shouldn't have to pair the effort with any other tax revision.

Which is why Grover's pledge is morally bankrupt. Because he doesn't acknowledge the inherent "badness" of the loophole getting closed, Grover opens the door to using other loopholes as a "pay for." The pledge doesn't require that the tax cuts used to balance loophole closing be good tax cuts (like a reduction in marginal rates). It just requires some sort -- any sort -- of revenue reduction. And left to their own devices, lawmakers will often choose the worst sort.

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