Martin Feldstein: Raise Taxes, but Not Tax Rates

[rankandfile]

Interesting op-ed in today's NYTimes.

I haven't had a chance to read his entire paper, so I don't have position on this, yet. I'm just putting it out there.

http://www.nytimes.com/2011/05/05/opinio...sheadlines&emc=tha212

"REDUCING the budget deficit and stopping the explosion of our national debt will require more tax revenue as well as reduced government spending. But the need for more revenue needn’t mean higher tax rates.

As the bipartisan fiscal commission appointed by President Obama stressed last year, tax revenues can be increased substantially by limiting the deductions, credits and exclusions that are essentially government spending by another name."

Edit: Added quote excerpt

[cbelt3]

Sure.

And yet.... the same empirical argument was applied to the whole concept of flat taxes. The problem is that 'deductions' are the government's opportunity to engage in social engineering... guiding the American people by grabbing firmly onto their wallets and pushing them towards.. home ownership.... charitable deductions... alternate energy... etcetera. When you remove that grasping hand, you remove a large component of the power that government holds over us.

As a result... don't expect politicians to like this idea.

Oh, and deductions are shown in the article as "Expenditures", which is a risible bit of obfuscatory word usage . How can you spend money you never had ?

[Grace62]

I'm understanding the idea of deductions and credits as gov't spending in terms of opportunity cost. The gov't is sacrificing that revenue, therefore it has a cost which must be measured.

Reigning in deductions and credits is the most likely way that Congress will drive increased revenue, politically it's less risky than rate hikes.

However, the idea presented by Feldstein (who was a Reagan advisor) in this article is very regressive and would hurt the middle class. Notice he excludes 401K savings and capital gains from his plan. People in the $25K to $50K range can hardly afford another $1,000 in taxes. I don't see this going anywhere.

[SDGuy]

rankandfile wrote:
...limiting the deductions, credits and exclusions..."

NOOOOOO....

[Grace62]

SDGuy wrote:
[quote=rankandfile]
...limiting the deductions, credits and exclusions..."

As a response to a call for higher taxes on the middle class you give us...Edvard Munch? How interesting. Munch was a socialist who dabbled in nihilism and anarchy. He was a champion of the working man and rejected the bourgeois values of the growing middle class.
He was horrified by and hid from the Nazis in Norway, though they managed to steal a lot of his paintings, and even managed to sully his memory by hosting his funeral and making it appear that he was a sympathizer. Fascinating man, not sure what your point was though...

[davester]

This is really a case of six of one versus half a dozen of the other. The only reason this might make sense is that the uneducated right wing masses have this horrendous fear of tax rate increases (which I think are necessary, since Bush dropped them below sustainable levels), but tend to overlook other measures (eliminating common deductions) that could have essentially the same effect.

That said, I do think that there are a lot of deductions that should be eliminated, notably the mortgage deduction (which completely warps consumer rent/buy decision-making and fuels the out-of-control housing market to consumer's detriment), and most agricultural and energy company deductions and allowances. One thing we should hang on to is deductions aimed at building up alternative energy industries (NOT including corn).

[mrbigstuff]

davester wrote:
That said, I do think that there are a lot of deductions that should be eliminated, notably the mortgage deduction (which completely warps consumer rent/buy decision-making and fuels the out-of-control housing market to consumer's detriment), and most agricultural and energy company deductions and allowances. One thing we should hang on to is deductions aimed at building up alternative energy industries (NOT including corn).

As hard as that would be (and it may turn out to be impossible), I have to agree.

Also, anything that moves us off the mark from using housing "starts" as the lens through which we view economic solvency is welcome.

In terms of alt energy credits, I think those are mostly going away or, at least, getting reduced. If the Repubs win in 2012, I think we'll see that come to fruition. The right sees those as "free money" to those who use alt-energy credits and we know who those folks are...

[davester]

mrbigstuff wrote:
In terms of alt energy credits, I think those are mostly going away or, at least, getting reduced. If the Repubs win in 2012, I think we'll see that come to fruition. The right sees those as "free money" to those who use alt-energy credits and we know who those folks are...

Sadly, those alt-energy credits are a miniscule drop in the bucket compared to the wholesale piles of our tax money that get shoveled into the coffers of big oil, big ag, big nuke, big coal, etc.

[August West]

Munch wrote:
"The sun went down behind a hill over looking the city and the fjord. I felt a trace of sadness and the sky suddenly turned blood red. I stopped walking, leaned against the railing, dead tired. My two friends looked at me and kept on walking. I watched the flaming clouds over the fjord and the city and my friends kept on. I stood there shaking with fear and I felt a great unending scream penetrate unending nature....I felt a loud scream and I really heard a loud scream. The vibrations in the air not only affected my eye, but my ear as well because I really heard a scream, and then I painted The Scream"