Should Tax Loopholes be on the Bargaining Table?

by Matthew Glans on July 7, 2011

As the debate over spending cuts and tax hikes rage in Congress, little ground has been given on both sides of the aisle and both parties have become increasingly polarized on the federal debt issue. In a new article from the Frum Forum, Eli Lehrer tackles this issue and makes several policy suggestions on how Republican Congressional leaders can turn the debate beginning with a compromise on “tax loopholes.”

“Eric Cantor’s recent declaration that Republicans will look at “loopholes “is a step in the right direction but Cantor is wrong to insist that any loophole closing be met with an equal cut in taxes. In fact if he bends just a little on this point, he could easily come up with something that looks a lot like a Republican victory.

It’s pretty simple. As I’ve argued before, most of the trillion dollars in “revenue expenditures” scored by the Congressional budget Office comes from big-ticket items that serve purposes very similar to marginal rate cuts. Since almost everyone is going to pay state and local taxes, incur medical expenses, and (at some point) have a home mortgage, its important to insist that very broad changes to these deductions for these things be offset with similarly-sized cuts somewhere else.”

Eli argues that Republican leaders can raise revenue in a way politically palatable to Democrats by agreeing to end certain tax breaks that are tough to justify, like tax breaks for new air conditioners or ethanol. Eli contends that Congress should treat all tax credits as if they shouldn’t exist and force policymakers to justify their existance. This “zero base” policy is similar to procedures used in several states.

“So here’s how Republicans can get a victory for themselves Democrats would probably have to accept: agree to raise some revenue by eliminating indefensible tax breaks for things like ethanol, privately owned cars, new air conditioning systems, second homes (a change in the mortgage interest deduction, yes, but not a broad one), while also cutting marginal tax rates for many by playing with some of the bigger features of the tax code in a revenue neutral way. If Tea Party Republicans really want to prove their libertarian bona fides, they should eliminate the state and local tax deduction wholesale (it subsidizes high-tax states and encourages the growth of government) and devote some or all of the revenue gains to cutting marginal rates on many middle-income people. If spending cuts were also part of the package (and, at least rhetorically, both sides support them), Republicans could deliver almost everything they promised last November.

The end result could be a real Republican victory: no default, real spending cuts, real deficit reduction, and lower marginal tax rates. This would be a very good package to take to the voters in November of 2012. And Republicans could take credit for almost all of it.”

Eli’s Frum Forum piece, “Here’s the Way to a Deal!” was originally published July 7 and can be found online at:

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  • Mario Tanner

    Eric cantor is definitely that your childhood bully who, after making other studentsu2019 lives unpleasant, still receives the credit for something he didnu2019t do. Donu2019t you think? Eric Canter is synonymous to bullying. Heu2019s a lot worse than Boehner. Thatu2019s just my opinion.n

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