The Concord Coalition, a non-partisan group that has concentrated exclusively on fiscal policy long before deficit-reduction was cool — back when Paul Ryan was in high school — has launched a new online column about “Taxes in a Civilized Society.”
In Washington, the subjects taxes and civilized may be an oxymoron but
the coalition’s chief economist, Diane Lim Rogers, takes a fresh look at how taxes and budgets and the economy intertwine.
In her first column, Rogers tries to set the ground rules and separate fact from ideology. She offers a perspective ignored on Capitol Hill that a wise tax policy that raises revenues does not mean a broad tax hike that hurts workers and employers.
In fact, Rogers, who is a staunch supporter of reining in entitlement programs, warns that all the tax breaks and deductions offered by Washington have a combined price tag of $1 trillion. And some of these “tax entitlements” are growing rapidly.
Here’s a portion of her piece:
“Deficit reduction is often just shorthand for encouraging fiscal responsibility — a broad and ambitious goal that promotes a strong economy and intergenerational equity. This goal is prominent in fiscal policy circles these days. Yet the intersection of budget policy with tax policy — namely, the crucial role that tax policy must play in reducing the deficit — is just starting to get policymakers’ attention.
“As the president’s fiscal commission and other groups that have produced deficit reduction plans of their own have made clear, the solution to our long-term fiscal challenges will have to involve a mix of both spending cuts and revenue increases.
“On the tax side, raising revenue can be done more intelligently if we recognize that how we raise that revenue is important for the overall efficiency and equity of our entire system of public tax and spending programs — the effectiveness of our fiscal policies as a whole — and not just in the simple accounting sense of how much we reduce the deficit.
“Unfortunately, the debate over how to decrease the deficit often has been reduced ideologically to a debate between Republicans, who want smaller government and think the deficit is a spending-side-only problem that should be solved with spending cuts alone (demographic trends be damned), and Democrats, who want bigger government and think the deficit problem exists mostly because of excessive tax cuts (especially those originally enacted by the previous administration) and that the deficit can be reduced mainly by raising taxes on the rich — no matter the cost of extending those tax cuts for the 98 percent of the population known as “not rich.”
“But this oversimplified dichotomy between the spending side and the tax side is often false. Viewing tax-side deficit reduction through the eyes of a tax analyst, one can see that we actually tax and spend through our tax system. The spending that occurs through tax expenditures means that tax-side solutions to the deficit problem need not be the Republican-created caricature of the Democratic position.
“Revenue increases do not have to mean raising marginal tax rates or increasing the size of government. And Democrats’ proposals for their tax-side solutions need not be limited to raising tax rates on the rich to be true to the Democratic goal of progressivity.
“… We need to ask ourselves what nature and level of public spending we want, and whether we are willing to pay for it with sufficient taxes, or whether we prefer to deficit-finance it and pass the burden along to our kids (and let them pay higher taxes later).
“From an equity perspective, who benefits from government spending — including that done through the tax code — and who should pay for it through taxes or other means? When we better understand how we all benefit from government-provided goods and services (even as we acknowledge the government’s ‘needs to improve’ performance), we can become more civilized taxpayers.
“…Our knowledge about what makes for better tax policy is vital when working on deficit reduction. Public finance experts know a lot more about how to raise additional revenue in economically intelligent ways than we know about, for example, how to more effectively contain healthcare costs. Our tax system should be designed to raise more revenue in as civilized (advanced, refined — and humane) a manner as possible.
“In other words, can we get smarter and better organized about tax policy? How can we reform the tax system to be more economically efficient and more equitable — not just in the context of the system in isolation, but in terms of its contribution to the larger government budget and our economy as a whole?
“The most basic role of taxation is to collect funds to pay for publicly provided goods and services, including subsidies for private-sector activities. But we also spend much of those public funds through the tax system via tax expenditures. The special provisions in our federal income tax code — exemptions, deductions, credits, or preferential tax rates — that reduce tax burdens on specific groups are economically analogous to direct spending and have a total cost of about $1 trillion per year — as much as all discretionary spending combined.
“If we are to bring greater fiscal discipline to the federal budget, we’ll need to carefully evaluate the structure of our tax system in terms of the economic merits of the various provisions, weighing costs against benefits, just as we do when evaluating spending-side programs. Are the tax expenditures justified as having higher net benefits than other spending programs that are being cut?
“In some cases, are we actually promoting specific activities via tax expenditures that run counter to other fiscal policy goals? If budget analysts started accounting for the longer-term growth of different types of tax entitlements just as we project the growth of different categories of more traditionally defined discretionary and mandatory spending, we would likely find these tax preferences are some of the fastest-growing components of federal spending.
“And because tax expenditures are created by cutting holes out of a progressive income tax base, their benefits go disproportionately to higher-income households, making them a more palatable target for cuts than most other forms of spending.”
You can learn more about Rogers’ column, which will appear in the weekly online magazine “Tax Notes,” at concordcoalition.org.
