TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, October 30, 2012

Bartlett: The Real Barrier to Tax Reform: Us

PogoNew York Times:  The Real Barrier to Tax Reform, by Bruce Bartlett:

Across the political spectrum, it is generally accepted that the basic goal of tax reform should be to broaden the tax base by eliminating tax preferences and lowering statutory tax rates. It is also believed that the principal barrier to such a reform is the resistance of special interests to the elimination of any particular preference that benefits them. But what if, to paraphrase Pogo, the special interest is us? ...

[Here] are the top 10 special provisions of the tax code that reduce revenues, with the estimated annual revenue loss.

... These and other tax expenditures enjoy wide support, and it is almost impossible to imagine them being abolished, even in return for lower statutory tax rates. ... President Obama and Mr. Romney have promised to protect the mortgage interest deduction. The problem is that when you take one popular deduction off the table, that becomes the best possible argument for keeping the next most popular deduction or exclusion and so on. Taking the top 10 off the table means taking more than 70 percent of the dollar value of all tax expenditures off the table, thus greatly limiting the potential for tax reform to lower rates.

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This is why the Romney idea of capping total deductions is a really good idea. No single tax preference item is identified and so the lobbying efforts against that policy are weakened. This is also makes the tax system more progressive.

The problem of course with the 'Romney plan is that he then wants to lower rates across the board, giving a huge tax decrease to the wealthiest Americans and more than offsetting the revenue gain from the cap on deductions.

As for including the employer paid portion of health insurance in employee income, well, can't wait to see how that plays. Which is why Romney won't ever mention it on the campaign trail.

Posted by: David R. | Oct 30, 2012 1:48:53 PM

"and it is almost impossible to imagine them being abolished, even in return for lower statutory tax rates..."

Tax reform (limiting tax expenditures, flattening rates) was accomplished in 1986.

There is no existential reason to believe the same cannot be accomplished again.

The "real barrier" may be less "us" (the taxpayers) than a political class that auctions off indulgences in the form of tax exemptions/deductions/credits.

DC is the corrupt Rome of the Middle Ages.

Bartlett has been around far too long not to know this.

Posted by: cas127 | Oct 30, 2012 1:54:55 PM

The problem with this article is they did not mention all the other give aways which I feel do make the top 10.....Tax exempt status for the NFL, NHL, PGA, NCAA and dozens of organizations that are not charitable or deserve tax exempt status. In addition, carried interest, deferred compensation, stock options, etc, etc........If you add up all these give aways you come up with a TRILLION dollars a year.....but none of this will ever be taken away.......DC auctions these privileges out to the highest bidder ....may the games begin in about 1 week.....

Posted by: Sid | Oct 31, 2012 4:09:42 PM