Ryan Streeter
As President Obama reiterated in his speech yesterday, the Left can’t conceive of dealing with fiscal imbalances without raising taxes on the rich, regardless of how little evidence we have that such an approach will actually help us achieve our long-term deficit reduction goals.
The best way to deal equitably with the rich is to make sure we end all subsidies that work unnecessarily in their favor. A conservative government reform plan for the 21st century would recalibrate government support for those truly in need and end welfare for everyone else.
On Tuesday I suggested that the GOP should be as serious about ending welfare for affluent Americans as they are reforming welfare for low-income people. Yesterday, I said one way to do that is to make sure we’re not spending entitlement dollars on the wealthy where we don’t need to. Today, I’ll look at how we can save money by ending the subtle “welfare” for the affluent in the tax code.
We can be brief on this one, because – in my view – the basic outline is supplied by the Bowles-Simpson Commission.
As the commission noted, our tax code contains $1.1 trillion in expenditures. The commission calls these “backdoor spending hidden in our tax code.” Paul Ryan points out in his budget (page 51) that this is roughly the amount that the federal government collects in income taxes each year. The number, when you stop to think about it, is truly staggering.
These provisions provide a disproportionate benefit to the upper middle class and beyond.
If we broaden the tax base with lower overall rates, we could then eliminate these numerous deductions, which would make the tax code fairer and simpler. Bowles-Simpson proposes going to 3 brackets: 28%, 22%, and 12%. We can go even lower if we keep fewer deductions in the tax code than the commission proposed. A 25%, 15%, 10% plan would work. It keeps progressivity, and then allows us to drop the deductions and exemptions that benefit primarily more affluent Americans.
Eliminating the mortgage interest deduction would be key, both as a matter of policy and principle. With lower tax rates, eliminating this provision makes a lot of sense and saves $100 billion. It’s also important as a principle, even a symbol. As much as all of us homeowners like the provision around April 15 each year, it is regressive and has even encouraged over-consumption in housing. Bowles-Simpson, despite proposing the elimination of nearly all deductions, keeps the mortgage interest one for principal residences. Republicans should propose eliminating it altogether – again, conditional upon lower tax brackets across the board.
We should preserve only those deductions or credits that strengthen the family, wages for lower income people, and civil society. This means preserving the child tax credit, the earned income tax credit, the charitable deduction, and creating for the first time a universal tax credit for the purchase of health insurance. Bowles-Simpson would keep more deductions than these, but the rationale for retaining the additional items is not that strong in my view. Rewarding work with the EITC, rewarding child-bearing, fixing the current tax distortions in health care, and maintaining the most optimal fundraising environment for America’s charitable groups are the basics. Everything else can go away. Only the latter – charitable giving – is inherently skewed towards the more affluent, itemizing taxpayers. But, in the end, this deduction is about incentivizing the affluent to give more, not to keep more for themselves.
These reforms actually seem like common sense for a 21st century America. But given the Democrats fixation on tax hikes and congenital opposition to almost everything else, the odds of pushing these reforms through anytime soon is unlikely. But that shouldn’t stop Republicans from advancing them.
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