Friday, December 28, 2012
[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.)