TRB MARCH 1, 2013
Jonathan Chait has a good post up about how Republicans don't really care about tax reform. I'd go further and say they aren't all that interested in deficit reduction, either. Let's review the contours of the current dispute between President Obama and House Republicans over ending the sequester. Here is what the president has put on the table:
1. Cancel the sequester by substituting a combination of spending cuts and tax increases. Obama has proposed more spending cuts ($930 billion) than tax increases ($680 billion), and that's before you add to the spending cuts $200 billion in foregone interest payments.
2. The tax cuts proposed by the president would not be a rate increase, but rather a limit on tax deductions to 28 percent of income for high earners. Obama has advocated this change since 2009.
3. In addition, the president proposes to close various tax loopholes, as yet unspecified, to reach $580 billion.
4. The remaining $100 billion in revenue would come from applying to income-tax-bracket thresholds (which rise with inflation) the same "chained" Consumer Price Index that Obama would use to lower Social Security payments. Since the chained CPI rises more slowly than the conventional CPI, taxpayers would reach higher-rate brackets more quickly than in the past. (Liberals can take only limited "what's-sauce-for-the-goose-is-sauce-for-the-gander" delight in this, because chaining income-tax brackets is also regressive. The biggest increase is for incomes between $30,000 and $40,000, and the increase for incomes above $500,000 is negligible.)
The House counteroffer is … actually, there is no House counteroffer, unless you count a sequester-replacement bill the House passed last May that eliminates the sequester's defense cuts and replaces them with domestic cuts. The House hasn't bothered to re-pass the bill since the new Congress began in January.
(The Senate, being majority Democrat, is largely a bystander to this dispute, though it's worth noting that yesterday a Democratic bill to replace the sequester, which combined spending cuts with revenue increases, would have passed if it hadn’t gotten filibustered by the GOP.)
House Speaker John Boehner won't support the president's offer because it includes a tax increase. Which part of the tax increase does he object to?
It can't be the deduction limit, because, according to The New York Times, Boehner as recently as December 17 was willing to support that.
It can't be the $100 billion raised by switching to a chained CPI, because, according to CNN, Boehner supported that in December, too.
By process of elimination, it must be getting rid of tax loopholes.
But wait. Didn't Boehner give a speech this week saying tax reform was one of his highest priorities? He's reserved the designation "HR 1" for an income-tax-reform bill. The animating idea of tax reform is to swap lower tax rates for getting rid of loopholes. If Obama wants to eliminate loopholes now, shouldn't Boehner be in favor of that?
Actually, no, because Boehner wants to eliminate loopholes and lower rates. Never mind that doing so would likely eliminate any deficit-reduction benefit from eliminating the loopholes, and that reducing the deficit is the only thing any serious-minded person is supposed to care about these days.
It would be absurd to think the "reform" part of tax reform consists in lowering marginal rates. You might have a case if rates were unusually high, but in fact they're quite low by historic standards. As a percentage of GDP, tax revenue hasn’t been this low since 1950! (The fiscal cliff deal bumped the top rates up, but only a little, and only on very high incomes.)
Boehner could try arguing that taxes are too progressive, and that what's needed is a tax system that's nicer to rich people and meaner to poor people. But Mitt Romney didn't have much luck with that gambit in 2012.
Inescapable conclusion: The GOP is not interested at all in tax reform, and it's only mildly interested in deficit reduction. It is mainly interested in tax reduction. All you need to do is look at the history of the past thirty-two years. The GOP has intermittently been interested in lowering the deficit whenever a Democrat was in the White House, but it has always been interested in lowering taxes. It has never not wanted to lower taxes. That's how they got so low!
The sequester can't be stopped because John Boehner thinks taxes are too high. But as we have seen, America's real problem is that taxes are too low. Historically low tax receipts go a long way toward explaining why the federal government is so broke right now. The Republicans' refusal to acknowledge this is pretty much the whole problem.