Tax breaks as ‘Tax expenditures’

A major proposal to address the deficit is to eliminate various tax deductions–such as for home mortgages and charitable (such as church) giving.  Those tax breaks are being interpreted as the same as government spending.  Eliminating them would increase government revenue by billions of dollars, or even, according to some estimates, a trillion.  Glenn Kessler, the Washington Post “Fact Checker,” takes a look at these claims and finds that things are not so simple.  Actually, he shows, cutting out the tax breaks may not raise so much money after all.

His evidence and reasoning resists simple summary, so I urge you to read what he has to say:   Warning to budget mavens: ‘Tax expenditures’ may yield less than expected – The Fact Checker – The Washington Post.

He also mentions a simpler variation that might have a better chance of passage:

One interesting proposal, advanced by Martin Feldstein, Daniel Feenberg and Maya MacGuineas, would cap the total value of tax reductions that a person could take to just 2 percent of adjusted gross income. Their research suggests that such a cap would raise $278 billion in 2011, and it would encourage 35 million Americans to shift from itemized deductions to the standard deduction, thus simplifying their taxes. It might also be easier to implement than trying to eliminate or scale back some of these popular provisions.

We conservatives hate tax increases, and the notion that the government deigning to let us keep our money is the same as a government expenditure–as if everything we have rightly belongs to the government–is noxious on multiple levels.

And yet, addressing the deficit in a bipartisan plan will almost certainly call for increasing revenues.   Setting aside the question of whether that should be the case, what means of increasing government revenue would you find most, if only minimally, acceptable?  What tradeoffs would you be OK with?

For example, I would want to preserve the housing deduction (since to do otherwise would damage the housing market even more, which is where our economic woes hurt lots of ordinary Americans, as well as contributing to high unemployment).  I would also want to preserve deductions for charitable giving (since churches and other non-profit organizations depend on those).  But to preserve those, I might grudgingly accept a cap on deductions or an increase in other taxes.

HT:  FWS

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • Lou

    I prefer to see reforming the tax code and the tax deduction system as increasing revenue rather than increasing government spending. Such a twisting of words is what keeps us from getting things done in this country.

    I do agree that some deductions, like the mortgage interest deduction, have to be treated very carefully. I’m not saying it should stay exactly the same, but changes would need to be implemented very gradually not to have a ripple effect. As far as charitable contributions, I’m not sure whether there has been a study on how this would impact people’s giving. Most committed church goers are going to give/tithe regardless of the tax break. But a lot of other philanthropists give with the expectation of taxing the deduction.

    This post mirrors a comment that I made earlier in A Plague on Both of Your Houses about the precariousness of tampering with tax deductions. The ripple effect has to be measured and accounted for, since companies and people make investment and financial decsions based on the tax benefits they receive. Whatever deduction is being considered for elimination can expect some amount of ripple effect and I’d like to think that there are folks who understand how their consequential choices will impact the economy. But maybe I expect too much.:)

  • Lou

    I prefer to see reforming the tax code and the tax deduction system as increasing revenue rather than increasing government spending. Such a twisting of words is what keeps us from getting things done in this country.

    I do agree that some deductions, like the mortgage interest deduction, have to be treated very carefully. I’m not saying it should stay exactly the same, but changes would need to be implemented very gradually not to have a ripple effect. As far as charitable contributions, I’m not sure whether there has been a study on how this would impact people’s giving. Most committed church goers are going to give/tithe regardless of the tax break. But a lot of other philanthropists give with the expectation of taxing the deduction.

    This post mirrors a comment that I made earlier in A Plague on Both of Your Houses about the precariousness of tampering with tax deductions. The ripple effect has to be measured and accounted for, since companies and people make investment and financial decsions based on the tax benefits they receive. Whatever deduction is being considered for elimination can expect some amount of ripple effect and I’d like to think that there are folks who understand how their consequential choices will impact the economy. But maybe I expect too much.:)

  • Lou

    “taxing the deduction.” should be “taking the deduction.

  • Lou

    “taxing the deduction.” should be “taking the deduction.

  • Rose

    “Obfuscation is the concealment of intended meaning in communication, making communication confusing, intentionally ambiguous, and more difficult to interpret.” (wikipedia).
    ‘Tax expenditures’ is an obfuscation.
    This reminds me of going into Starbucks for the first time and being asked by a condescending barrista ‘tall, grande or venti’?
    By the time you recover from the attitude, you discover you’re out $5.
    I wonder if they have to teach folks at Starbucks and in the government to talk like this with a straight face.

  • Rose

    “Obfuscation is the concealment of intended meaning in communication, making communication confusing, intentionally ambiguous, and more difficult to interpret.” (wikipedia).
    ‘Tax expenditures’ is an obfuscation.
    This reminds me of going into Starbucks for the first time and being asked by a condescending barrista ‘tall, grande or venti’?
    By the time you recover from the attitude, you discover you’re out $5.
    I wonder if they have to teach folks at Starbucks and in the government to talk like this with a straight face.

  • Bdozer

    Thinking God’s thoughts after Him. From one word Tithe, to two Flat Tax.

  • Bdozer

    Thinking God’s thoughts after Him. From one word Tithe, to two Flat Tax.

  • fws

    I think we should think about movement in a direction. it is not easy to change the course of a big ship.

    So the movement should be towards tax simplification. And this is because we should not use the tax system to incentivize behavior, which is what we do for example with the mortgage deduction.

    If people need a tax break to be motivated to do something, than that something might not be the sensible or truly best thing to do in real terms for society at large or for the individual.

    I would rather see the Republicans peel back their rhetoric a notch and push for a general principle like this, and vote for anything that represents movement in the desired direction.

    But that wont happen because it is “compromise” and it doesn’t provide that grover norquist “branding” that they feel is politically valuable. This kinda stuff doesnt fit so neatly on a bumper sticker.

  • fws

    I think we should think about movement in a direction. it is not easy to change the course of a big ship.

    So the movement should be towards tax simplification. And this is because we should not use the tax system to incentivize behavior, which is what we do for example with the mortgage deduction.

    If people need a tax break to be motivated to do something, than that something might not be the sensible or truly best thing to do in real terms for society at large or for the individual.

    I would rather see the Republicans peel back their rhetoric a notch and push for a general principle like this, and vote for anything that represents movement in the desired direction.

    But that wont happen because it is “compromise” and it doesn’t provide that grover norquist “branding” that they feel is politically valuable. This kinda stuff doesnt fit so neatly on a bumper sticker.

  • WebMonk

    Wow, at the moment I’m seeing the WaPo’s entire site down!

    Dr. Veith! Your blog sent them so much traffic that it shut them down!

  • WebMonk

    Wow, at the moment I’m seeing the WaPo’s entire site down!

    Dr. Veith! Your blog sent them so much traffic that it shut them down!

  • SKPeterson

    Tax expenditures are government spending – the government takes in taxes and then expends the revenue. It should not mean foregoing revenue.

    The problem with redefining ‘expenditures’ as foregone tax receipts is that it implies that the government has the first right to each and every dollar a person earns, and then the government deigns to release some of these funds back to the populace that earned it. If the government releases more of these funds, then the government is increasing “tax expenditures” if it the government retains more, it is increasing its “revenues,” never mind the moral question of property rights, primacy, and restraint in taking any of the incomes earned by individuals or companies. When the total government take on any given earned dollar is upwards of 40%, I think the government should be “expending” upwards of 20% back to the people who earned it.

  • SKPeterson

    Tax expenditures are government spending – the government takes in taxes and then expends the revenue. It should not mean foregoing revenue.

    The problem with redefining ‘expenditures’ as foregone tax receipts is that it implies that the government has the first right to each and every dollar a person earns, and then the government deigns to release some of these funds back to the populace that earned it. If the government releases more of these funds, then the government is increasing “tax expenditures” if it the government retains more, it is increasing its “revenues,” never mind the moral question of property rights, primacy, and restraint in taking any of the incomes earned by individuals or companies. When the total government take on any given earned dollar is upwards of 40%, I think the government should be “expending” upwards of 20% back to the people who earned it.

  • Lou

    SK: Huh??? you wrote: “it implies that the government has the first right to each and every dollar a person earns”. In what universe? First of all, there will never be a 100% tax (each and every dollar_ and secondly, no one has to pay their taxes up front (first right). You can just as easily choose to pay your taxes on April 15, the year following the one in which you earned them.

  • Lou

    SK: Huh??? you wrote: “it implies that the government has the first right to each and every dollar a person earns”. In what universe? First of all, there will never be a 100% tax (each and every dollar_ and secondly, no one has to pay their taxes up front (first right). You can just as easily choose to pay your taxes on April 15, the year following the one in which you earned them.

  • Lou

    I think understanding why it is important to see decreasing “government expenditures” thru tax breaks is important in the political debate. It’s because the idea of raising tax revenue is so abhorant to the Republican slogan makers. So I guess the packaging is the way that they are hoping to get moderate (sane) Republicans to consider tax reform as a viable effort.

    Overall, I just think plain English is better than equivocal terms. Our country has a serious problem with using words and equivocating.

    Bottom line for me: Calling a tax break a tax expenditure is just a little too much like fuzzy math for me.

  • Lou

    I think understanding why it is important to see decreasing “government expenditures” thru tax breaks is important in the political debate. It’s because the idea of raising tax revenue is so abhorant to the Republican slogan makers. So I guess the packaging is the way that they are hoping to get moderate (sane) Republicans to consider tax reform as a viable effort.

    Overall, I just think plain English is better than equivocal terms. Our country has a serious problem with using words and equivocating.

    Bottom line for me: Calling a tax break a tax expenditure is just a little too much like fuzzy math for me.

  • http://jdueck.net Joel D

    SKPeterson @7, just let me take this apart a little, if you will.

    Tax expenditures are government spending – the government takes in taxes and then expends the revenue. It should not mean foregoing revenue.

    If your salary is $60,000 a year and you decide to offer your employer a reduction in your salary to $50,000 to help him out, how is that qualitatively different than cutting him a check for $10,000?

    The problem with redefining ‘expenditures’ as foregone tax receipts is that it implies that the government has the first right to each and every dollar a person earns, and then the government deigns to release some of these funds back to the populace that earned it.

    Actually, this is exactly the legal framework under which our government operates. In article I, Section 8 of our Constitution, we gave Congress “the Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.” That Power means the government has that right, and the legal framework upon which our tax code is based starts with that assumption. The Articles of Confederation tried doing without this power, and it proved a major defect.

  • http://jdueck.net Joel D

    SKPeterson @7, just let me take this apart a little, if you will.

    Tax expenditures are government spending – the government takes in taxes and then expends the revenue. It should not mean foregoing revenue.

    If your salary is $60,000 a year and you decide to offer your employer a reduction in your salary to $50,000 to help him out, how is that qualitatively different than cutting him a check for $10,000?

    The problem with redefining ‘expenditures’ as foregone tax receipts is that it implies that the government has the first right to each and every dollar a person earns, and then the government deigns to release some of these funds back to the populace that earned it.

    Actually, this is exactly the legal framework under which our government operates. In article I, Section 8 of our Constitution, we gave Congress “the Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.” That Power means the government has that right, and the legal framework upon which our tax code is based starts with that assumption. The Articles of Confederation tried doing without this power, and it proved a major defect.

  • http://jdueck.net Joel D

    As a conservative, one thing I wish more conservatives would realize is that the United States government is not some foreign entity. The government is us. If we reduce taxes, yes, we keep more money in our individual pockets; but on the other side, we’re taking it away from ourselves as well and paying interest on it to boot.

    I’m all for reducing spending. But the fact is that between Republicrats and Democans, unfunded wars and entitlement spending, the vast bulk of money has already been spent. We need to find a way to pay the bills we have already incurred, and it’s simply not going to happen without raising revenue. In the 1950s the top tax rate was 90% and the mean unemployment rate was 4.5%, so letting rates rise to 40% or 50% is not going to kill us. We might fear that new revenue will simply increase the scope of government further, but we can deal with that separately.

  • http://jdueck.net Joel D

    As a conservative, one thing I wish more conservatives would realize is that the United States government is not some foreign entity. The government is us. If we reduce taxes, yes, we keep more money in our individual pockets; but on the other side, we’re taking it away from ourselves as well and paying interest on it to boot.

    I’m all for reducing spending. But the fact is that between Republicrats and Democans, unfunded wars and entitlement spending, the vast bulk of money has already been spent. We need to find a way to pay the bills we have already incurred, and it’s simply not going to happen without raising revenue. In the 1950s the top tax rate was 90% and the mean unemployment rate was 4.5%, so letting rates rise to 40% or 50% is not going to kill us. We might fear that new revenue will simply increase the scope of government further, but we can deal with that separately.

  • ELB

    Don’t forget the Laffer (sp?) Curve, famous from Reagan’s efforts to trim taxes. It was an attempt to calculate and quantify the extent to which reduction in marginal tax rates would result in an increase in revenue (or neutrally affect it). The idea is that taxing income, especially progressively, disincentivises economic activity that produces income or profit to the point that tax revenue decreases, whil decreasing the marginal tax rate incentivises profitable activity, resulting in more revenue. Under Reagan’s marginal tax rate cuts revenue nearly doubled. The most profitable people got to keep a larger percentage, but ended up paying more in taxes.

    (As a simple example: Sell a widget for $25, at a margin of $20 and you might make $20, but you may sell only one. Sell the widget for $10 at a margin of $5 and you only make 5$ each, but you may sell a hundred. The Laffer Curve applies similar price point calculations to the tax issue.)

    One reason conservatives support lower marginal tax rates (and a broadening of the tax base) is not selfishness, but because it is best for all, including the need to raise revenue to pay off the debt. Another reason we oppose taxes is that the size and intrusiveness of the government is a product of the degree to which they can expropriate capital.

  • ELB

    Don’t forget the Laffer (sp?) Curve, famous from Reagan’s efforts to trim taxes. It was an attempt to calculate and quantify the extent to which reduction in marginal tax rates would result in an increase in revenue (or neutrally affect it). The idea is that taxing income, especially progressively, disincentivises economic activity that produces income or profit to the point that tax revenue decreases, whil decreasing the marginal tax rate incentivises profitable activity, resulting in more revenue. Under Reagan’s marginal tax rate cuts revenue nearly doubled. The most profitable people got to keep a larger percentage, but ended up paying more in taxes.

    (As a simple example: Sell a widget for $25, at a margin of $20 and you might make $20, but you may sell only one. Sell the widget for $10 at a margin of $5 and you only make 5$ each, but you may sell a hundred. The Laffer Curve applies similar price point calculations to the tax issue.)

    One reason conservatives support lower marginal tax rates (and a broadening of the tax base) is not selfishness, but because it is best for all, including the need to raise revenue to pay off the debt. Another reason we oppose taxes is that the size and intrusiveness of the government is a product of the degree to which they can expropriate capital.

  • ELB

    Joel D @ 10

    Your analysis is faulty – unless I am missing something there.
    Even if an employee’s salary is cut, it doesn’t remove assets from his balance sheet as writing a check for $10K would.

    Furthermore, where taxes are concerned the assumption in the constitution is NOT that your income belongs to the government unless you are allowed to keep it, the assumption is that it belongs to you unless you through your representatives choose to pay it in the form of taxes. The power ot tax is not the power to expropriate.

  • ELB

    Joel D @ 10

    Your analysis is faulty – unless I am missing something there.
    Even if an employee’s salary is cut, it doesn’t remove assets from his balance sheet as writing a check for $10K would.

    Furthermore, where taxes are concerned the assumption in the constitution is NOT that your income belongs to the government unless you are allowed to keep it, the assumption is that it belongs to you unless you through your representatives choose to pay it in the form of taxes. The power ot tax is not the power to expropriate.

  • DonS

    “He also mentions a simpler variation that might have a better chance of passage:
    One interesting proposal, advanced by Martin Feldstein, Daniel Feenberg and Maya MacGuineas, would cap the total value of tax reductions that a person could take to just 2 percent of adjusted gross income. ”

    The last thing we need is yet another cap, phase-out, or other complication to our tax system. How is it simple to put a cap on something? It’s another worksheet, schedule, form, line to put in the tax return. First, you will calculate the total amount you potentially could deduct, then you will fill out a worksheet to determine how much you actually can deduct, then you will have to put both values on two different lines in your form. THAT IS NOT SIMPLE! Every tax deduction, credit and the like in recent years comes with its own phase-out, cap, etc., and thus its own worksheet and form to determine whether you can take that credit/deduction and, if you can, how much you can take. Has anyone else noticed how complicating that is to preparing a tax return? Worse yet is the AMT (Alternative Minimum Tax), which requires you to prepare your tax return two different ways, and then pay the higher of the two resulting taxes. How stupid!

    How about this concept? Set the rates at whatever level you determine is required, then determine what deductions/credits you are going to offer. Then, everyone gets those deductions/credits up to the amount of taxes they owe. No AMT. No phase-outs or caps. Much simpler, and it doesn’t cause resentment for people that always seem to just miss the deduction/credit while everyone else gets to take it. In a voluntary compliance tax system, it is not a good idea to cause resentment in taxpayers.

    As for tax policy, I prefer a phase-out to a consumption-based tax, and repealing the 16th Amendment, for the purpose of getting the government out of our private financial affairs on 4th Amendment grounds. I’m always amused at how the liberal civil libertarians always excuse the IRS. You can’t search my house for pot, but feel free to rummage through my bank accounts without the need for probable cause. No problem, Mr. IRS agent! It makes no sense to me.

    However, I don’t see that happening anytime soon. So, in the meantime, we should be gradually phasing in a tax reform to lower overall rates and far fewer deductions and credits. Get the government out of the business of deciding who gets preferences in paying taxes and socially engineering how we spend our money. It needs to be done gradually, or with a transitional dual system, to give people time to adjust, since they have planned their lives based on our current tax policy. Simplify the system, dramatically lower the costs of compliance for businesses and individuals, after which the government will be justified in designing the reformed system to take in more revenue than the current one does, overall. I could accept that.

    However, at bottom, Joel D @ 11, our primary problem is NOT the spending we have already done. It is, rather, the continued auto-pilot spending we PLAN on doing. That is what makes our debt unsustainable. We must tackle spending first, and bring our future spending into alignment with current revenues. THEN, after we have done the hard part of weaning ourselves from our ridiculous future entitlements, we can talk about increasing revenues to address the existing debt.

  • DonS

    “He also mentions a simpler variation that might have a better chance of passage:
    One interesting proposal, advanced by Martin Feldstein, Daniel Feenberg and Maya MacGuineas, would cap the total value of tax reductions that a person could take to just 2 percent of adjusted gross income. ”

    The last thing we need is yet another cap, phase-out, or other complication to our tax system. How is it simple to put a cap on something? It’s another worksheet, schedule, form, line to put in the tax return. First, you will calculate the total amount you potentially could deduct, then you will fill out a worksheet to determine how much you actually can deduct, then you will have to put both values on two different lines in your form. THAT IS NOT SIMPLE! Every tax deduction, credit and the like in recent years comes with its own phase-out, cap, etc., and thus its own worksheet and form to determine whether you can take that credit/deduction and, if you can, how much you can take. Has anyone else noticed how complicating that is to preparing a tax return? Worse yet is the AMT (Alternative Minimum Tax), which requires you to prepare your tax return two different ways, and then pay the higher of the two resulting taxes. How stupid!

    How about this concept? Set the rates at whatever level you determine is required, then determine what deductions/credits you are going to offer. Then, everyone gets those deductions/credits up to the amount of taxes they owe. No AMT. No phase-outs or caps. Much simpler, and it doesn’t cause resentment for people that always seem to just miss the deduction/credit while everyone else gets to take it. In a voluntary compliance tax system, it is not a good idea to cause resentment in taxpayers.

    As for tax policy, I prefer a phase-out to a consumption-based tax, and repealing the 16th Amendment, for the purpose of getting the government out of our private financial affairs on 4th Amendment grounds. I’m always amused at how the liberal civil libertarians always excuse the IRS. You can’t search my house for pot, but feel free to rummage through my bank accounts without the need for probable cause. No problem, Mr. IRS agent! It makes no sense to me.

    However, I don’t see that happening anytime soon. So, in the meantime, we should be gradually phasing in a tax reform to lower overall rates and far fewer deductions and credits. Get the government out of the business of deciding who gets preferences in paying taxes and socially engineering how we spend our money. It needs to be done gradually, or with a transitional dual system, to give people time to adjust, since they have planned their lives based on our current tax policy. Simplify the system, dramatically lower the costs of compliance for businesses and individuals, after which the government will be justified in designing the reformed system to take in more revenue than the current one does, overall. I could accept that.

    However, at bottom, Joel D @ 11, our primary problem is NOT the spending we have already done. It is, rather, the continued auto-pilot spending we PLAN on doing. That is what makes our debt unsustainable. We must tackle spending first, and bring our future spending into alignment with current revenues. THEN, after we have done the hard part of weaning ourselves from our ridiculous future entitlements, we can talk about increasing revenues to address the existing debt.

  • http://jdueck.net Joel D

    Your analysis is faulty – unless I am missing something there. Even if an employee’s salary is cut, it doesn’t remove assets from his balance sheet as writing a check for $10K would.

    Since you use accrual-based accounting terms…As an accountant, I can say that a cut in your salary most certainly does reduce your assets. And without other changes it will obviously reduce your equity too.

    the assumption is that it belongs to you unless you through your representatives choose to pay it in the form of taxes.

    Unless you can show it to me somewhere, I am not aware of any such assumption. And you make the choice to pay taxes much more individual and direct than it really is. The real “assumption” in our constitutional republic is that we have relinquished our individual choice to pay taxes, and delegated the power to lay and collect them to our representatives in Congress, and also given them wide latitude to do so.

    The power to tax is not the power to expropriate.

    Please explain this, it doesn’t make any sense to me. Where in America or anywhere else in human history have you had one without the other?

  • http://jdueck.net Joel D

    Your analysis is faulty – unless I am missing something there. Even if an employee’s salary is cut, it doesn’t remove assets from his balance sheet as writing a check for $10K would.

    Since you use accrual-based accounting terms…As an accountant, I can say that a cut in your salary most certainly does reduce your assets. And without other changes it will obviously reduce your equity too.

    the assumption is that it belongs to you unless you through your representatives choose to pay it in the form of taxes.

    Unless you can show it to me somewhere, I am not aware of any such assumption. And you make the choice to pay taxes much more individual and direct than it really is. The real “assumption” in our constitutional republic is that we have relinquished our individual choice to pay taxes, and delegated the power to lay and collect them to our representatives in Congress, and also given them wide latitude to do so.

    The power to tax is not the power to expropriate.

    Please explain this, it doesn’t make any sense to me. Where in America or anywhere else in human history have you had one without the other?

  • http://jdueck.net Joel D

    We must tackle spending first, and bring our future spending into alignment with current revenues. THEN, after we have done the hard part of weaning ourselves from our ridiculous future entitlements, we can talk about increasing revenues to address the existing debt.

    I can see no reason, not even a pragmatic one, that the two things need to happen in that order, or that they can’t happen in parallel. If anything, Republicans would have had much more credibility if they had agreed to raise revenues while also cutting spending. As it is, by only slightly trimming spending and failing to raise revenue, they’ve just contributed to the borrowing problem.

  • http://jdueck.net Joel D

    We must tackle spending first, and bring our future spending into alignment with current revenues. THEN, after we have done the hard part of weaning ourselves from our ridiculous future entitlements, we can talk about increasing revenues to address the existing debt.

    I can see no reason, not even a pragmatic one, that the two things need to happen in that order, or that they can’t happen in parallel. If anything, Republicans would have had much more credibility if they had agreed to raise revenues while also cutting spending. As it is, by only slightly trimming spending and failing to raise revenue, they’ve just contributed to the borrowing problem.

  • http://jdueck.net Joel D

    ELB @12,

    Don’t forget the Laffer (sp?) Curve, famous from Reagan’s efforts to trim taxes.

    Conservatives nowadays don’t understand the Laffer Curve. The thing we keep forgetting is that it is a curve. One one side of the curve, lowering taxes will tend to increase revenue. But if you are on the other side, lowering taxes will in fact lower revenue.

    The hard part is knowing which side of the curve you’re on.

    But when most conservatives talk about the Laffer Curve, just like you, what they are thinking of is more like a Laffer Line in which tax cuts always yield more revenue.

    Reagan increased revenue by lowering rates and closing loopholes and reducing tax expenditures, the same way the Simpson-Bowles proposal would have. Except that nowadays conservatives don’t just want lower rates, they want “no additional revenue, period.” If they were Reaganites they’d do it the way he did it.

  • http://jdueck.net Joel D

    ELB @12,

    Don’t forget the Laffer (sp?) Curve, famous from Reagan’s efforts to trim taxes.

    Conservatives nowadays don’t understand the Laffer Curve. The thing we keep forgetting is that it is a curve. One one side of the curve, lowering taxes will tend to increase revenue. But if you are on the other side, lowering taxes will in fact lower revenue.

    The hard part is knowing which side of the curve you’re on.

    But when most conservatives talk about the Laffer Curve, just like you, what they are thinking of is more like a Laffer Line in which tax cuts always yield more revenue.

    Reagan increased revenue by lowering rates and closing loopholes and reducing tax expenditures, the same way the Simpson-Bowles proposal would have. Except that nowadays conservatives don’t just want lower rates, they want “no additional revenue, period.” If they were Reaganites they’d do it the way he did it.

  • DonS

    Joel @ 16: The reason for doing it in that order is history. We have a checkered history of simultaneously raising taxes and “cutting” spending. However, it has always turned out to be out-year cuts that are mere reductions in the rate of increase in spending and that are later reversed by subsequent legislation by future congresses. Take, as an example, the Obamacare legislation of 2008. Part of the calculation in determining that it would not increase downstream healthcare costs was a 20% cut in Medicare reimbursements to providers. Everyone knew it was a fiction and would never be allowed to happen, but leaders refused to take it out of the package because they needed it to make it balance in CBO scoring. That cut has not yet been enacted, but since Obamacare is now in place, the fact that the scoring was bogus doesn’t matter.

    That’s how Congress works. Get the tax increase up front, promising later spending cuts, then use the increased revenue to temporarily paper over the problem and fail to actually enact or maintain the spending cuts. It’s time for a new paradigm. Spending cuts, which obviously need to be dramatic and real decreases in current spending, up front, and including the current budget year. That is the only way we have any hope of escaping the mess we’ve created.

    Joel, you say @ 11 that you are a conservative. But your arguments don’t strike me as very conservative ones. How do you define conservative?

  • DonS

    Joel @ 16: The reason for doing it in that order is history. We have a checkered history of simultaneously raising taxes and “cutting” spending. However, it has always turned out to be out-year cuts that are mere reductions in the rate of increase in spending and that are later reversed by subsequent legislation by future congresses. Take, as an example, the Obamacare legislation of 2008. Part of the calculation in determining that it would not increase downstream healthcare costs was a 20% cut in Medicare reimbursements to providers. Everyone knew it was a fiction and would never be allowed to happen, but leaders refused to take it out of the package because they needed it to make it balance in CBO scoring. That cut has not yet been enacted, but since Obamacare is now in place, the fact that the scoring was bogus doesn’t matter.

    That’s how Congress works. Get the tax increase up front, promising later spending cuts, then use the increased revenue to temporarily paper over the problem and fail to actually enact or maintain the spending cuts. It’s time for a new paradigm. Spending cuts, which obviously need to be dramatic and real decreases in current spending, up front, and including the current budget year. That is the only way we have any hope of escaping the mess we’ve created.

    Joel, you say @ 11 that you are a conservative. But your arguments don’t strike me as very conservative ones. How do you define conservative?

  • DonS

    Joel @ 17: By the way, I am all for lowering rates AND eliminating tax preferences, so that overall revenues increase. I think it will be a necessary part of the solution, and I believe that the elimination of the ghastly tax compliance costs taxpayers incur under the current preference-riddled system will compensate for the increased tax payments. As long as government also figures out that job creation can best be stimulated by streamlining regulation and actually encouraging business growth, and by focusing on infrastructure improvements over wealth redistribution programs, we will see our economy grow.

    I just want Congress to show the good faith to tackle the auto-pilot spending programs first.

  • DonS

    Joel @ 17: By the way, I am all for lowering rates AND eliminating tax preferences, so that overall revenues increase. I think it will be a necessary part of the solution, and I believe that the elimination of the ghastly tax compliance costs taxpayers incur under the current preference-riddled system will compensate for the increased tax payments. As long as government also figures out that job creation can best be stimulated by streamlining regulation and actually encouraging business growth, and by focusing on infrastructure improvements over wealth redistribution programs, we will see our economy grow.

    I just want Congress to show the good faith to tackle the auto-pilot spending programs first.

  • http://jdueck.net Joel D

    Fiscally speaking, “conservative” for me means balanced budgets, a sustainable economy, and targeted borrowing for sound, economy-growing investments (such as infrastructure). The same way familes and businesses ought to be run financially.

    I’m in favour of considering lower taxes in good times, but there isn’t much evidence that lower taxes are always a panacea for a sustainable economy, or that raising them will always hurt the economy. Historically, our GDP and employment have grown the most when we’ve had higher rates.

  • http://jdueck.net Joel D

    Fiscally speaking, “conservative” for me means balanced budgets, a sustainable economy, and targeted borrowing for sound, economy-growing investments (such as infrastructure). The same way familes and businesses ought to be run financially.

    I’m in favour of considering lower taxes in good times, but there isn’t much evidence that lower taxes are always a panacea for a sustainable economy, or that raising them will always hurt the economy. Historically, our GDP and employment have grown the most when we’ve had higher rates.

  • http://jdueck.net Joel D

    DonS, It occurs to me that I’d like to know which of my arguments strike you as inherently unconservative, and in what way…I just looked over them again and I’m not sure what you mean, exactly.

  • http://jdueck.net Joel D

    DonS, It occurs to me that I’d like to know which of my arguments strike you as inherently unconservative, and in what way…I just looked over them again and I’m not sure what you mean, exactly.

  • kerner

    Just as aside, fellas. There’s always the Wisconsin approach of cutting expenditures by paying each government employee a little less money. This would make it a lot easier to impliment Don’s suggestion that we do away with baseline budgeting, in which increasing spending more slowly is called a “spending cut”.

    I don’t see how we can ever be serious about reducing expeditures as long as we have a institutional increase in expenditures built into the budget every year.

  • kerner

    Just as aside, fellas. There’s always the Wisconsin approach of cutting expenditures by paying each government employee a little less money. This would make it a lot easier to impliment Don’s suggestion that we do away with baseline budgeting, in which increasing spending more slowly is called a “spending cut”.

    I don’t see how we can ever be serious about reducing expeditures as long as we have a institutional increase in expenditures built into the budget every year.

  • DonS

    Joel D, I was surprised at your eagerness to raise tax rates to 40 or 50% without first tackling our serious spending problem. I understand your argument that we have no business reducing taxes right now, and completely agree with it (which is one reason why the decision to temporarily reduce FICA tax rates this year, and Obama’s proposal to continue that reduction next year, is unwise). But most conservatives I know are alarmed by the sharp increase in government spending as a percentage of GDP (currently about 24%, as opposed to historic levels of 18-20%), and see that as the foremost problem we face, particularly given the prospect for much sharper spending increases because of entitlements, both FICA and Medicare, as well as Obamacare and other supplemental income programs.

    Presumably, you recognize that the 90% rate from the Eisenhower era only impacted marginal income over $400,000 in 1956! We had a lot of brackets back then, and a lot of available deductions, which were both taken away in the Reagan tax reforms of 1981 and 1986. The top rates you are talking about would occur at about the same income level ($400,000) currently, which is vastly lower in spending power, and in an environment where vastly less income can be protected through the deductions and shelters available in the 1950′s tax code. A 40-50% federal tax rate, coupled with Obama’s proposal to lift the cap on FICA taxes (another 15.3%), further coupled with state and local income taxes which can reach a further 10%, means a marginal tax rate of 65-70% on all taxable income over $300,000 – 400,000. That is a ridiculously unproductive and disincentivizing level of taxation, as any conservative would know.

    This historical table, showing federal government spending and outlays as a percentage of GDP since the 1930′s, is instructive as to what the true problem currently is: http://nationalpriorities.org/resources/federal-budget-101/charts/general/federal-outlays-and-revenues-1930-2015-perc-gdp/

    We should be targeting historical averages for both revenues and outlays to have a sustainable economy going forward, and that is going to mean we need a lot more work on the spending side than the revenue side.

  • DonS

    Joel D, I was surprised at your eagerness to raise tax rates to 40 or 50% without first tackling our serious spending problem. I understand your argument that we have no business reducing taxes right now, and completely agree with it (which is one reason why the decision to temporarily reduce FICA tax rates this year, and Obama’s proposal to continue that reduction next year, is unwise). But most conservatives I know are alarmed by the sharp increase in government spending as a percentage of GDP (currently about 24%, as opposed to historic levels of 18-20%), and see that as the foremost problem we face, particularly given the prospect for much sharper spending increases because of entitlements, both FICA and Medicare, as well as Obamacare and other supplemental income programs.

    Presumably, you recognize that the 90% rate from the Eisenhower era only impacted marginal income over $400,000 in 1956! We had a lot of brackets back then, and a lot of available deductions, which were both taken away in the Reagan tax reforms of 1981 and 1986. The top rates you are talking about would occur at about the same income level ($400,000) currently, which is vastly lower in spending power, and in an environment where vastly less income can be protected through the deductions and shelters available in the 1950′s tax code. A 40-50% federal tax rate, coupled with Obama’s proposal to lift the cap on FICA taxes (another 15.3%), further coupled with state and local income taxes which can reach a further 10%, means a marginal tax rate of 65-70% on all taxable income over $300,000 – 400,000. That is a ridiculously unproductive and disincentivizing level of taxation, as any conservative would know.

    This historical table, showing federal government spending and outlays as a percentage of GDP since the 1930′s, is instructive as to what the true problem currently is: http://nationalpriorities.org/resources/federal-budget-101/charts/general/federal-outlays-and-revenues-1930-2015-perc-gdp/

    We should be targeting historical averages for both revenues and outlays to have a sustainable economy going forward, and that is going to mean we need a lot more work on the spending side than the revenue side.

  • Stephanie

    Lou @8 “You can just as easily choose to pay your taxes on April 15, the year following the one in which you earned them.”

    No, many people actually can’t. Not unless they are willing to pay large punitive fees for being beyond the ‘safe harbor’ limit for underpayment of taxes. That assumes, of course, that they were able to convince their employers to not take the taxes through payroll deductions. (Good luck with that.) While it is true that I attempt to owe taxes every April to avoid giving Uncle Sam an interest-free loan, I am still not paying my taxes is April. Just the relatively small portion of them that hadn’t already been paid via other means.

  • Stephanie

    Lou @8 “You can just as easily choose to pay your taxes on April 15, the year following the one in which you earned them.”

    No, many people actually can’t. Not unless they are willing to pay large punitive fees for being beyond the ‘safe harbor’ limit for underpayment of taxes. That assumes, of course, that they were able to convince their employers to not take the taxes through payroll deductions. (Good luck with that.) While it is true that I attempt to owe taxes every April to avoid giving Uncle Sam an interest-free loan, I am still not paying my taxes is April. Just the relatively small portion of them that hadn’t already been paid via other means.

  • Cincinnatus

    I think we should return to the medieval paradigm in which, when the prince desired funds, he found it incumbent upon himself to travel from town to town begging citizens to offer voluntarily whatever fiscal contributions they saw fit for a given purpose. Such funds, of course, were non-repeating and to be used only for specific, limited, temporally delimited purposes–perhaps an infrastructure project or a foreign military excursion. What a check on governmental power!

  • Cincinnatus

    I think we should return to the medieval paradigm in which, when the prince desired funds, he found it incumbent upon himself to travel from town to town begging citizens to offer voluntarily whatever fiscal contributions they saw fit for a given purpose. Such funds, of course, were non-repeating and to be used only for specific, limited, temporally delimited purposes–perhaps an infrastructure project or a foreign military excursion. What a check on governmental power!

  • Lou

    Stephanie, true. I forgot about the penalty. Personally, I know that I am able to take numerous deductions, so I try to match my exemptions with about what my tax bill will be in April. Otherwise, I’ll get huge tax refunds every year. Of course, I used to be able to earn interest by keeping the money and depositing it in a savings account. But now that there is no interest to be had, maybe I’ll switch back to paying more throughout the year so I can use the refund in some specific way. Or maybe the deductions will go away and I’ll just pay more throughout the year and not get a refund. We shall see.

  • Lou

    Stephanie, true. I forgot about the penalty. Personally, I know that I am able to take numerous deductions, so I try to match my exemptions with about what my tax bill will be in April. Otherwise, I’ll get huge tax refunds every year. Of course, I used to be able to earn interest by keeping the money and depositing it in a savings account. But now that there is no interest to be had, maybe I’ll switch back to paying more throughout the year so I can use the refund in some specific way. Or maybe the deductions will go away and I’ll just pay more throughout the year and not get a refund. We shall see.


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