President Obama is considering whether to push early next year for an overhaul of the income tax code to lower rates and raise revenues in what would be his first major effort to begin addressing the long-term growth of the national debt.Not surprisingly, given the emphasis of the deficit commission, the administration's nascent tax planning focuses on reducing "tax expenditures," i.e. the huge array of targeted tax breaks such as the mortgage deduction or, say, College 529 plans. Doing so would enable increasing revenues while lowering rates. (Obama suggested that he would eventually want to do this with corporate tax rates way back in June 2008.)
The chief contribution of Obama's deficit commission was to demonstrate that there is at least some potential to get some Republicans to sign onto the idea of raising revenue while cutting rates by reducing expenditures. Conservative senators Tom Coburn and Michael Crapo voted for the plan.
What may defang the idea of raising revenue somewhat for at least some conservatives is the possibility of considering tax expenditures to be what the name suggests they are -- spending. As I noted while the commission's ideas were being floated, conservative commentator Heather MacDonald referred to cutting out tax breaks as cutting spending:
It would be refreshing if, instead of exclusively blasting the proposal’s relatively modest tax increases, such as raising the federal gas tax fifteen cents to pay for transportation projects (a legitimate user fee), they supported the proposal’s more audacious cuts, such as reducing the mortgage deduction. (The commission would eliminate the deduction only for mortgages over $500,000, alas.) The willingness to take on this middle class subsidy would be stronger proof of iconoclastic independence than pushing for repeal of 17th Amendment, a favorite piece of Tea Party arcana. Both would be an uphill battle; I’d rather see political capital expended on getting rid of a constitutionally-suspect government hand-out, especially given the contribution of the federal government’s obsession with increasing home ownership to the 2008 fiscal crisis.The Times claims, too, without quoting anyone, that "people in both parties agree that the next tax-overhaul effort would almost certainly have to raise revenues to address the nation’s growing fiscal problems."
Really? Could supply-side mania be subsiding just a little in the face of mammoth deficits?
It will take a titanic struggle to forge a new tax regime that significantly pinches treasured tax breaks and distributes the overall burden among different economic classes in a manner acceptable to both parties. But it's remarkable how even the outline of one major compromise over tax rates and tax breaks changes one's sense of the possible. Or rather, two compromises, though one is mainly conceptual. Who would have thought a month ago that the deficit commission could knead its initial plan outline into a shape that would garner 11 out of 18 votes, and that Obama and the Republican leadership could agree on a package that yields substantial real stimulus to balance the giveaways to the rich?
UPDATE 12/10: Jonathan Chait makes a pretty powerful case that a tax reform deal is not going to happen until after 2012 -- the "battle of the baseline" must be fought first. The Times article, citing the 1986 compromise, roughed out a 3 year timeline. But such a timeline is almost premised on Obama putting forth a proposal now.