Wednesday, December 12, 2012

If loophole closures are benefit cuts, are benefit cuts tax hikes?

Eduardo Porter suggests that raising new tax revenue by cutting loopholes opens up a semantic loophole:
Though the offer to raise money by closing loopholes has a bipartisan pedigree — based on a plan proposed last year by the Democrat Erskine Bowles and the Republican Alan Simpson, the chairmen of President Obama’s deficit commission — it relies on rhetorical sleight of hand. If tax breaks are equivalent to government spending, eliminating them is equivalent to spending cuts. Mr. Boehner’s offer to do away with tax breaks in exchange for cutting entitlements raises no new revenue. It amounts to cutting spending twice.
Porter goes on to point out that a) Democrats have opened many "loopholes" for the poor and middle class because it's often the only form of social spending that Republicans will allow, but b) on balance, tax deductions disproportionately benefit the wealthy. His main point: we should consider each break on its merits, not make a shibboleth out of closing out as many as possible.

I would add a couple of wrinkles. First, Republicans are conflicted about whether to regard tax breaks for the nonwealthy as spending or tax cuts.  On the one hand, they've not only acceded to Democrat-initiated lower-income tax breaks, but sweetened their own wealthy-tilted tax cut goodies by cutting taxes and expanding loopholes for the nonwealthy as well.  On the other hand, they've come to regret the low-end largess, as all that bitching about the 47%, the lucky duckies who pay no income taxes, demonstrates.

Second, if Republicans are pulling the wool over by treating loophole closures as tax hikes, they've got themselves fooled as well.  When such tax "increases" were being bruited in the debt ceiling negotiations of 2011, Tom Coburn and others struggling to wriggle out of Grover Norquist's embrace experimented with casting  loophole closures (e.g., the ethanol subsidy) as "spending cuts."  It didn't fly; Norquist screamed that any phased out tax break would have to be offset by another tax break, and the GOP fell in line.
Finally, there is a mirror image to the semantic jujitsu involved in dubbing loophole closures "revenue hikes"  in Republicans' professed fondness for means-testing Medicare and Social Security benefits.  Republicans, it would seem, will fight to the death against raising the cap on income subject to the FICA tax, but they profess to be okay with limiting wealthy taxpayers' entitlement benefits. A Medicare savings proposal put forward by Senators Coburn and Lieberman, for example, would have seniors earning more than $150k pay for the whole of their Medicare Parts B and D premiums and would limit Medigap coverage of Medicare cost sharing.  At the same time, Coburn and Lieberman would raise everyone else's share of their Medicare B premiums from 25% to 35%, as well as raising deductibles and copays. The projected savings from cutting benefits for the vast bulk over seniors vastly outweighs those gained from cuts aimed at the wealthy.

Coburn is in any case off the GOP reservation on tax hikes, and Lieberman is not a Republican. Which raises a question: how serious are Republican decision makers about targeting the wealthy for entitlement benefit cuts? Is it something they're willing to do, as they were willing in the past to cut taxes for the nonwealthy to add credibility to their never-ending drive to cut taxes for the wealthy?  Do they regard relatively small, symbolic cuts in wealthy seniors' benefits as a sweetener for broad benefit cuts for everyone else?

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