Capping Tax Expenditures: The Right Solution for the Wrong Reasons

Clive Crook likes this proposal from Martin Feldstein:


Raise Taxes, but Not Tax Rates -- from Martin Feldstein very timely. (The article draws on an NBER working paper by Feldstein, Daniel Feenberg, and Maya MacGuineas.) The idea is very simple: cap the aggregate tax savings granted to any taxpayer through tax expenditures to 2 per cent of that taxpayer's income.

I think this is a pretty good proposal.  But it's also a depressing proposal, because ultimately what we're looking for is a way to pretend that we aren't raising taxes.  The end result of "cutting tax expenditures" is that taxpayers are going to be sending more money to Washington every year.  But apparently, we can't tell them this.  We have to dress it up as a spending cut, or a harmless tweak of deductions that won't affect very many people.  But this is going to be a major hit for a large number of taxpayers, many of whom will not be particularly rich.

Don't get me wrong: I think there are good economic reasons to support simplification.  But I do not think that these reasons are why tax simplification is catching on.  It's gaining traction because politicians know they need to raise revenue, but they also know that they can't say this to voters.

On the other hand, this is really not the time to be choosy about budget solutions.  If we have to pass the right bill for the wrong reasons, I'm okay with that.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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