TaxProf Blog

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

Friday, December 28, 2012

Burman & Slemrod: Closing Tax Loopholes Isn’t Enough

New York Times op-ed:  Closing Loopholes Isn’t Enough, by Leonard E. Burman (Syracuse) & Joel B. Slemrod (Michigan):

[T]hose Republicans who acknowledge that additional tax dollars will be necessary say we can get what we need without increasing a single tax rate. All we have to do is close up some “loopholes” and “broaden the base”! We can keep in place the Bush-era tax cuts, they say, and make up any lost revenue simply by eliminating various deductions, exclusions and credits.

At first glance, the idea seems great. Who wouldn’t want to root out the tax evaders and finaglers who are shirking the shared burden? And the idea of a broader base of taxpayers paying lower rates across the board sounds so much simpler and fairer for every citizen.

But closing loopholes is neither sufficient to do the job nor as “fair” to everyone as it might seem.

There is no painless way to raise revenue, as past attempts have shown. Increased levies on corporations are ultimately passed along to shareholders, workers or customers. Raising taxes on foreign companies increases the cost of capital as businesses keep their cash overseas. Even a fix as “obvious” as doubling down on audits to catch tax cheaters ends up creating a burden for honest citizens caught in the snare.

Closing loopholes and purging deductions are no more exempt from the laws of tax physics than any of the above. ... [I]n the end, none of these fixes will be enough to raise the revenue we need to balance the budget, begin to pay off America’s debt and avoid the fiscal cliff. Nor can we cut spending enough to achieve those goals. ...

That leaves us with one choice: do all of the above. Let’s trim spending where we can, broaden the base where it makes the most sense and, yes, raise marginal tax rates as well. Returning tax rates to Clinton-era levels for married filers making over $250,000 a year and singles making $200,000 or more, as President Obama has proposed, would be a good start, and might provide the impetus for more serious discussions of tax and entitlement reform.

The only thing we shouldn’t do is pretend any of these fixes will be painless or easy for everyone. They won’t. Even in a happy, thriving democracy, someone ends up holding the bag.

(Hat Tip: Ann Murphy, Mike Talbert.)

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It depends upon what you call loopholes....I would advocate getting rid of tax exempt status for almost every organization...NFL, PGA, PACs, political orgs, and almost every charity except a very few...then carried interest and then the 100s of tax goodies for the many businesses such as the idea of writing off a ship or boat before you even own it, oil subsidies, wind, farming,one can go on and one has ever figured out the tax revenues this would bring in because Congress does not have the guts to cut these old "taker" positions that have been in the code forever but do nothing to help the economy or anything else. If this was ever reviewed we could keep tax rates where they are or even lower them. Then in addition lower government expense such as congressional staffs and every departments staffs except the IRS to levels of 1990 and that includes defense and we balance the budget without a lot of trouble but this will never happen...we need to pass legislation to be able to sue public officials for malfeasance or negligence or be able to vote them out immediately ...then we would have politicians who would respond to the public and not just someone who only cares about themselves and preserving their job...Congress is the most selfish lot on earth......don't care that the fiscal cliff will cause peoples savings to decrease, 401ks to drop and the economy to flounder.

Posted by: Sid | Dec 28, 2012 5:08:40 PM

You'll know a fiscal gap closing plan is for real to the extent that it results in loud screaming from all sides.

The 2012 campaign was wasted, with both candidates implying that the middle class will not experience large financial losses relative to the fairy tale of promised benefits at current tax rates.

Posted by: AMTbuff | Dec 28, 2012 6:49:47 PM