"Why Eliminating Tax Breaks Isn’t A Substitute For Raising Taxes On The Rich"
President Obama’s proposal to avoid going over the so-called “fiscal cliff,” the combination of spending cuts and tax increases scheduled to occur at the end of the year, called for a total of $4 trillion in deficit reduction, $1.6 trillion of which would come through tax increases. Republicans, who are at least conceding that new revenues could be a piece of the deal this time, have said they will not support increases in tax rates, and that new revenue should instead come from the elimination of tax breaks and the closure of loopholes.
Using data from the Joint Committee on Taxation, Politico found that closing the 10 biggest tax breaks would generate $834 billion in new revenue:
And even if you dump the biggest of the set, these tax perks don’t even come close to closing the deficit. At best, the top 10 would pull in an extra $834 billion a year, according to Joint Committee on Taxation figures. Considering the hole lawmakers are trying to fill is several trillion dollars large, it’s clear they wouldn’t even come close.
But the problem isn’t that ending tax breaks wouldn’t generate enough revenue, as Politico suggests. Instead, it’s that eliminating the 10 tax breaks it identified would be politically impossible. Included in the 10 most expensive breaks are several that, in addition to providing help to middle- and lower-income families, are politically popular with both parties and stand almost no chance at elimination. The Earned Income Tax Credit, for instance, provides cash refunds to working-poor families, and it kept 3 million children out of poverty in 2010. Republican attempts to target the EITC in the past have failed.
Other tax breaks that benefit middle- and lower-class Americans include the largest of them all, the $164-billion exclusion for employer-sponsored health insurance. The second largest is the tax break on retirement savings, and the mortgage interest deduction and an exclusion for Medicare benefits also benefit middle-income Americans. All three are popular across party lines.
Though Republicans have taken aim at some of those tax breaks in the past, using them as a way to raise significant new revenues amounts to the “new waste, fraud, and abuse.” Calling for fewer loopholes makes for a convenient talking point for politicians who want to sound serious about raising new revenue even when they’re not.