August 28, 2014

Some Common Ground on Tax Reform

  • The federal budget is an expression of our country's values. Where we choose to spend and at what levels, how and who we tax, and the borrowing we...

Democrats and Republicans have long appeared to have an irreconcilable difference on tax policy: Democrats want more revenue, raised entirely from households with annual incomes over $250,000, while Republicans don’t want any new revenue, particularly from higher tax rates on the rich.

But Diane Lim, chief economist for The Concord Coalition, says that beyond the partisan rhetoric, there is “room for optimism” that a deal can be reached.

“Republicans have begun to shed their single-minded devotion to anti-tax advocate Grover Norquist’s ‘no new taxes pledge’,” she writes in a blog post today. “Notable examples are Senators Bob Corker (R-TN), Saxby Chambliss (R-GA) and Lindsey Graham (R-SC) along with Representative Peter King (R-NY).”

These Republicans recognize the economic difference between raising revenue by raising marginal tax rates, and raising revenue by broadening the tax base by reducing subsidies built into the tax code. The first approach increases the size and influence of government; the second reduces it.

“For any Republican who feels the same way that Corker, Chambliss, Graham and King do, the common ground they share with the Obama administration on tax policy and deficit reduction is actually very large,” Lim writes.

Both Republicans and Democrats, she says, “seem to like this general principle of substituting a broader base for lower rates, and even the particular combination of limits on itemized deductions paired with continued, low marginal tax rates for most Americans.”

But it is not helpful, she adds, for Republicans and Democrats “to keep emphasizing the tax policies they would each choose to implement if they were ‘king of the world’ – for example, Democrats insisting that tax rates on the rich must come up to pre-2001 levels or even higher, while Republicans keep arguing for just the opposite.”