So Rob’s not a fan of David Brooks’s latest. It’s easy to understand why. But it’s worth noting that in this section—
If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred million dollars of revenue increases.
A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government. It would seize the opportunity to put the country on a sound fiscal footing. It would seize the opportunity to do these things without putting any real crimp in economic growth.
The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary.
—Brooks isn’t necessarily insane. Nor are John McCain and John Cornyn, who, it seems, may be sympathetic to some of Brooks’s argument.
But they’re obviously already getting some stiff opposition from the anti-tax crowd—and not, pace Mr. Long, just from the Tea Party. Brooks may have had in mind people like Grover Norquist and the gang at Americans for Tax Reform—an influential and long-established part of the conservative universe—who’ve called “eliminating tax expenditures” “left wing code for ‘raising taxes.’” Their position paper, if you will, is here.
The thing is that some of these tax expenditures are just bad policy—and small-government conservatives should want to see them eliminated. In the latest issue of National Affairs (yes, shameless employer plug), Donald Marron—former acting CBO director, and head of the Urban-Brookings Tax Policy Center—does a very good job explaining just what tax preferences are; their effect on government; which of them are good and which pernicious; and the role they can (and should) play in budget negotiations and our broader efforts to get our deficits and debt under control.
In the essay, he points out that many of the “tax expenditures” that some on the right want so desperately to keep are really just big-government spending programs in disguise. The tax exemption for state and local bond interest, for example, is basically a federal-government subsidy for local-government spending (often on boondoggles). Marron even mentions “one tax provision … that has as its sole purpose lowering taxes as NASCAR venues.” Others aren’t necessarily big spending programs, but do, as Brooks said, distort economic behavior in sometimes unhealthy ways—like the deduction for home-mortgage interest.
So there is a lot of money to be saved by eliminating some of these preferences (which amount to over $1 trillion a year), or restructuring ones that lead to skewed behavior and more bloated and inefficient government. The question to be asking, then, is which preferences exactly the Democrats propose to eliminate. (Here, Rob has a good point—the Devil’s in the details.) Republicans could make Brooks happy—and signal a cooperativeness to the public—if they said they were willing to look at tax expenditures as part of a broader deal. The challenge would then be holding firm and allowing the elimination only of those preferences that serve conservatives’ ends: making government spend less and do less.
The other big question is about revenue neutrality. If these tax preferences are eliminated, ATR’s concern is justified: government will indeed take in more money (though, as Marron says, not necessarily as much as lawmakers might be inclined to believe). The ultimate aim of eliminating these expenditures should be, as the ATR folks rightly argue, offsetting them with a simpler, fairer tax code that reduces rates on everyone. These two things could go together as part of one massive tax-reform package. But in the current economic and political climate, that seems unlikely. They could also be separated, and one or the other—eliminating spending-like preferences, or lowering tax rates—could go first. But again, in the current climate, a sweeping reduction of tax rates without some offsetting source of revenue seems unlikely.
So why not let the tax expenditures go first? If they’re truly inefficient, big-government spending in disguise, why not allow them to be eliminated now? The question is mostly one of tactics: Is it worth giving up the tax expenditures today to get the massive spending cuts Brooks seems to think are in the stars as part of the debt-ceiling deal? Or should they be saved as a bargaining chip for something even bigger, like a massive all-at-once simplification of the tax code? There’s good reason to believe that if Republicans give in on the tax expenditures now, Democrats won’t ever let them have a massive tax-reform deal that reduces rates. And if Republicans cave on this point, and the Democrats renege, the result will be the significant tax hikes that ATR fears. What GOP lawmakers need to decide, really, is whether that's a risk they're willing to take. Do they want to close these “loopholes” as part of a spending deal today, or part of a tax deal that may or may not materialize tomorrow? It’s a tough question to answer.
The Republicans’ conundrum, then, seems mostly to be a strategic one—not a moral one. And it's hardly a "no-brainer," as Brooks seems to suggest. So Rob is right to be miffed at Brooks’s accusations of moral deficiency. But Brooks is right that Republicans should allow themselves more room to maneuver on this issue—precisely because their next steps aren't as obvious as he would have us believe.