StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Tax Policy Center Director Lays Out Revenue Raising Options

07 Oct 2010
Posted by Pete Davis

Today, Urban-Brookings Tax Policy Center Director Donald Marron told the National Economists Club that additional revenues are bound to be needed to avoid a federal debt explosion over the next decade. Plenty of spending cuts could be made too, but they're unlikely to be enough. Starting with that premise, he outlined four options for raising revenue:

1. Increase economic growth. Each percentage point of addition growth would add approximately $2.5 trillion to federal revenues over the next decade. That's real growth. A point of additional inflation raises revenues by a similar amount, but federal spending would rise about $3.0 trillion, so that doesn't work. Americans may work longer. We could allow more immigration, particularly of better educated immigrants, because they tend to pay more taxes than they consume benefits.

2. Cut tax expenditures. Many spending programs masquerade as tax incentives, often with perverse effects. For example, the home mortgage deduction rewards high income taxpayers, who would own a home anyway, for taking on more debt. Better to convert it to a credit so those on the cusp of owning a home would get more help.

3. Enact environmental taxes such as a carbon tax. It would have the double advantage of raising revenue and reducing pollution and global warming. Pigovian taxes that recoup the cost of externalities, such as pollution, make a lot of sense. They are unpopular, which is why the House adopted a carbon cap and trade bill late last year. It's essentially a tax with so many exemptions that it wasn't clear it would ever raise any revenue.

4. If the above are insufficient, as seems likely, then adopt a Value Added Tax (VAT). Those are unpopular too, so call it something else. Canada has a federal system and has done a particularly good job of implementing its Goods and Service Tax (GST). The Tax Policy Center will publish several studies on the VAT.

The NEC will post a summary in a week here.

LOL. If the above are


If the above are insufficient go to a VAT but don't call it that.

Pretty odd. No tax increases are necessary beyond letting the Bush and Obama tax cuts expire.

Only someone who doesn't think spending can be cut at all could say something like that.

> Plenty of spending cuts

> Plenty of spending cuts could be made too, but they're unlikely to be enough.

Of course they may be enough.
Politicians will never have enough spending. They need to be told when enough is enough, and sometimes this happens.

Taxing and Spending

I can see that a significant debate is emerging, even among conservatives, over how to define "spending" versus "taxing". Here's how Douglas Holz-Eakin proposed defining "tax expenditures in his handout to the NEC:

"Tax  Expenditures  – any deduction or credit that is not mortgage interest, charitable contribution, municipal bond interest, or Earned Income Tax Credit".

While that is a pretty broad definition, it seems to directly contradict paragraph 2, above, regarding Marron's definition, which specifically mentions home mortgage interest as a "tax expenditure".

I hope we will at least agree that the interest deduction on home equity loans will have to go.

Well you can always cut

Well you can always cut things so that the poor all starve to death. That might save some money. What you never can do is increase taxes on the rich. They own and control the USA, like the nobility owned and controlled Ancien Regime France, so that is definitely out.

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