Monday, November 15, 2010

"Cuts"? Or "tax cuts"?

The Dish flags Heather MacDonald's challenge to the Tea Party to get serious about deficit reduction. I find MacDonald's terminology interesting. It points to a kind of liminal zone on the ideological battlefield of tax hikes vs. spending cuts:

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.

MacDonald seems to think of eliminating 'tax expenditures' (targeted tax breaks) as spending cuts rather than tax hikes. Those expenditures are in an ideological nether zone; conservatives and liberals alike could swing either way on them, or differently on different ones.  By focusing on them, Bowles-Simpson opens up a negotiating space, albeit one stocked largely with sacred cows.

My sense is that 'tax expenditures' have become a kind of social program of choice because conservatives put so much pressure on progressives not to dole out money directly. It's more politically acceptable to try to shape incentives and behavior and dispense goodies with targeted tax cuts. Hence our swiss cheese tax system.  They're still used every day, e.g., in all the recently proposed and enacted biz tax cuts designed to spur hiring and investment. Not to mention in almost every corporate tax break.

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