The best news about Obama's budget plan

Update: I fear this post is wrong -- Krugman seems to me to have been mistaken.

Paul Krugman has unraveled what struck me as the central mystery of Obama's deficit reduction speech -- and revealed the President's plan to be far more progressive than it looks.  My question (#3 in prior post): since Obama pegged the gain from sunsetting the Bush tax cuts for the wealthiest 2% at $1 trillion over 12 years, and also proposed reducing "tax expenditures" (targeted tax breaks) in a comprehensive tax code overall, how did that add up to just $1 trillion in total tax hikes?  Why does 1 + x = 1?*  Krugman:

I don’t want to step too much on the administration’s selling point, but progressives upset by the claim that there are three dollars of spending cuts for every dollar of tax increases should be aware that there’s a bit of creative labeling going on. As I understand it, they’re counting both interest savings and reductions in “tax expenditures” — subsidies through the tax code — as spending cuts. It’s a much more balanced plan if you look at the balance between revenue increases and non-interest outlays.

Just to clarify, the White House fact sheet explicitly counts interest savings in the 3:1 ratio. But counting reduced "tax expenditures" as spending cuts -- that really tips the ratio, and it's brilliant politics as well as a perfectly fair use of the English language.  It's brilliant because a) conservatives occasionally have flirted with the same concept -- Coburn, in a recent tussle with Grover Norquist, struggled to effectively define ending the ethanol tax credit as a spending cut -- and b) protesting that cutting a tax break is not a "spending cut" should tie the GOP in knots, since creating new tax breaks has been a preferred mode of social spending for two decades.

Bipartisan glimmers

This is very good (if unsurprising) news:

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:

"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.