Despite his declaration that the Senate “needs to get off their ass,” Speaker John Boehner (R-Ohio) may have opened up the possibility of negotiations on real tax reform.
Of course, tax committee chairmen Rep. Dave Camp (R-Mich.) and Sen. Max Baucus (D-Mont.) are deep into negotiations to come up with workable ideas to reform our tax system. So Boehner’s comments today weren’t totally out of the blue.
But Boehner may realize the key to a grand bargain is as much in revamping our tax system as it is in the Tea Party’s slash and burn politics. As much as the Republicans love to repeat “we have a spending problem,” the smart ones know deep down that we have a revenue problem too.
And any politician who hasn’t been on Mars understands that the public wants a balanced approach, not a meat ax, by a whopping 76 percent versus 19 percent, according to the latest Pew survey.
The sequester is about to put the squeeze on various people like a very tight vise. But many will escape, unless they stand in three-hour lines at airports.The real question, which few can answer, is what will be the effect on the economy at large. Will we make stupid decisions on spending similar to those that the British made? Will we take a clear recovery and turn it into another downward spiral, as the Brits did? Will we lose 700,000 jobs, keep money on the sidelines, harm our retirees’ 401(k) plans?
If the sequester leads to a grand bargain that includes tax reform, entitlement reform and selective cuts — with timelines and a reasoned plan for the long term — it all could work.
But not if Boehner is being cute and will insist that tax reform means “you can have your cake and eat it too.” In other words, we just shuffle taxes around but no one pays more and the wealthy continue to get their hedge fund breaks and their corporate jets.
There is a key reason why this is not so simple. Let’s look at the numbers. There are over 200 tax deductions, breaks, loopholes, whatever you want to call them. Most were put in for a public policy reason: to help businesses pay for healthcare, to encourage charitable giving, to help middle-class families buy a home, etc.
They cost us about $1.1 trillion a year.
But here is the kicker.
Of the over 200, the top two, employee health plans and pension contributions/earnings, account for 27.5 percent of that $1.1 trillion.
The next three — the mortgage interest deduction, the exclusion for Medicare and lower capital gains rates — raise the share to nearly 50 percent of that $1.1 trillion.
In fact, the top 10, which also include charitable deductions, deductions of state income taxes, breaks for inheritance taxes and the earned income tax credit, result in 70 percent of the total.
So, closing “loopholes” is not nearly as simple or easy as it sounds. These are tough decisions when it comes to finding the money and determining who gets harmed and who gets helped.
The deductions that cost the most, one could argue, also help the most people and are there for a reason. I don’t envy Camp or Baucus. If this were easy, it would have been done already.
But one thing is clear, and that is Boehner needs to convince his caucus, and maybe himself, that means testing, fair taxes on hedge fund managers, ending generous breaks for the hugely profitable oil industry and closing offshore tax havens should all be on the table. That would be a good place to start.
I have to confess, though, I have my doubts.