Friday, November 30, 2012

GOP's "base-broadening, rate-lowering" tax reform Big tax increase for many.

This really is an eye opener and must read.

Gov. Scott Walker wants to lower state and property taxes. This is the same disastrous plan George Bush implemented in 2001 when he claimed tax surpluses meant over taxation, and passed the debt swelling tax cuts. Those Clinton surpluses would have wiped out debt and provided funding need to reform out tax code and other costly programs. A simple thing like changing the tax code would cost taxpayer about a trillion dollars, which puts us deeper in the hole. 

But Walker's plans may just collide with congresses plans to rate lowering tax reform and "base broadening." And for those who want to turn Wisconsin deep red politically, aren't going to like how that gets done. Ezra Klein lays it out for us:

Base-broadening, rate-lowering tax reform.” It sounds so good, right? But what if you call it what it really is? Charity-destroying, home-shrinking, state-burdening tax reform.

Doesn’t sound as good, does it?

But that’s really what we’re talking about. The term ”base-broadening, rate-lowering tax reform” has the advantage of vagueness: No one knows what it means. And as former OMB director Peter Orszag points out, 90 percent of the value of those deductions comes from just three categories: “taxes paid (mostly state and local taxes), home-mortgage interest and charitable contributions.”

So when we say “base-broading, rate-lowering tax reform,” here’s what we’re really saying: Tax reform that’s paid for by cutting tax breaks for charities, homes, and state and local taxes.

Then there’s the deductibility for state and local taxes. Removing that deduction will pound taxpayers who reside in high-tax cities or states — which means it’ll hit those cities and states by making them less attractive places to live. And note the political economy: those states and cities are disproportionately blue. All 10 of the highest-tax states went for Obama in 2012, while eight of the 10 lowest-tax states went for Romney.

“Base-broadening, rate-lowering tax reform” isn’t magic. It’s more of a magic trick: It relies on obfuscation and misdirection to distract the audience from the tax increases.

But limiting itemized deductions in order to raise revenues is a tax increase, and we should be honest about where it’s coming from. The answer, overwhelmingly, is charitable deductions, the home-mortgage interest deduction, and the state and local tax deduction. Perhaps it’s better to raise taxes on those activities rather than raise marginal rates. But that’s the conversation we need to be having.

Repeating the term ”base-broadening, rate-lowering tax reform” over and over again isn’t getting us anywhere.

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