National Security

Separated at Birth: Merkel and Clinton

Add to Briefcase
See more stories about...
June 7, 2011, 10:34 a.m.

Gov. Jim Gib­bons (R) “still hos­pit­al­ized after break­ing his pel­vis in a horse rid­ing ac­ci­dent last month, plans to par­ti­cip­ate by phone” in a Board of Ex­am­iners and Board of Trans­port­a­tion meet­ing 10/12.

Gib­bons spokes­per­son Daniel Burns: “I’ve seen him every day, and he gets a little bet­ter every day. They still have him on a rig­or­ous pro­gram of re­hab. We don’t know when he’s go­ing to get out. When you’re in the hos­pit­al, the doc­tors tell you how long you’re go­ing to stay. He’s do­ing everything he can to get his re­hab done, get out of the re­hab cen­ter and get back to the Gov­ernor’s Man­sion as fast as he can” (Reno Gaz­ette Journ­al, 10/7).

Burns “said Gib­bons was able to move around in a wheel­chair” 10/6 (Vo­gel, Las Ve­gas Re­view-Journ­al, 10/7).

COR­REC­TION: The print ver­sion of this column gave an in­cor­rect num­ber for how much rev­en­ue Pres­id­ent Obama’s Buf­fett Rule ap­proach would raise—it would bring in about $520 bil­lion over the next dec­ade. 

The Buf­fett Rule is dead. Long live the Buf­fett Rule.

A Sen­ate Re­pub­lic­an fili­buster this week killed the so-called Buf­fett Rule, Pres­id­ent Obama’s pro­pos­al that mil­lion­aires pay at least 30 per­cent in fed­er­al in­come taxes. It died de­rided by its crit­ics as class war­fare and mourned only mod­estly by its sup­port­ers, many of whom ap­plauded the prin­ciple but con­sidered it something of a sideshow be­cause it would have raised re­l­at­ively small sums.

Yet if Con­gress re­forms the tax code next year, it will likely take in­spir­a­tion from one of the pro­pos­al’s core in­sights. The Buf­fett Rule looked to stream­line the code not by re­peal­ing in­di­vidu­al tax breaks but by mak­ing all of those loop­holes less valu­able to af­flu­ent tax­pay­ers. Rather than re­du­cing the sup­ply of spe­cial tax breaks, the Buf­fett Rule would re­duce the de­mand for them. If the next Con­gress and pres­id­ent are to suc­ceed at lower­ing rates and rais­ing rev­en­ues by sim­pli­fy­ing the code, they will likely need to fol­low that strategy as well.

In both parties, broad in­terest now ex­ists in flat­ten­ing the tax code. Spe­cial ex­clu­sions, cred­its, and de­duc­tions re­duce fed­er­al rev­en­ue by about $1 tril­lion an­nu­ally, with that sum ex­pec­ted to rise to $1.5 tril­lion by 2016.

Some eco­nom­ists dis­like tax ex­pendit­ures be­cause they dis­tort de­cision-mak­ing (for in­stance, by en­cour­aging people to spend too much on hous­ing). Oth­ers op­pose them be­cause their be­ne­fits skew heav­ily to­ward the wealthy. Tax­pay­ers in the 15 per­cent brack­et save 15 cents on each dol­lar they can de­duct in, say, mort­gage in­terest; those in the top brack­et save 35 cents. Few out­side the top fifth of highest-earn­ing fam­il­ies even file re­turns with item­ized de­duc­tions that al­low them to be­ne­fit from most of these breaks.

The res­ult is that two-thirds of the be­ne­fits from all tax ex­pendit­ures in 2011 flowed to the top fifth of earners, ac­cord­ing to the Tax Policy Cen­ter; the top 1 per­cent alone (with in­comes above $533,000) col­lec­ted nearly one-fourth of all sav­ings. That’s an av­er­age of nearly $220,000 each. By con­trast, the group cal­cu­lated, these breaks re­duce taxes by only about $2,000 on av­er­age for fam­il­ies in the bot­tom 60 per­cent of earners. “It is com­pletely up­side down,” says Le­onard Bur­man, a Syra­cuse Uni­versity pro­fess­or of pub­lic ad­min­is­tra­tion. “If you are in the 10 or 15 per­cent brack­et, you’re not get­ting much of a sub­sidy. But if you are in the 35 per­cent brack­et you’re get­ting a really big sub­sidy.”

If Wash­ing­ton spent less on those tax ex­pendit­ures, it could re­duce in­come-tax rates and also gen­er­ate sig­ni­fic­ant rev­en­ue for de­fi­cit re­duc­tion. With only slight vari­ations, a suc­ces­sion of bi­par­tis­an com­mis­sions and ini­ti­at­ives, from the Simpson-Bowles and Domen­ici-Rivlin de­fi­cit-re­duc­tion pan­els to the Sen­ate “Gang of Six” have em­braced that ap­proach.

Even the private budget ne­go­ti­ations last sum­mer between Pres­id­ent Obama and House Speak­er John Boehner ex­plored this concept. No mat­ter which party con­trols the White House or Con­gress next year, it’s likely that Wash­ing­ton will pur­sue tax sim­pli­fic­a­tion (al­though Re­pub­lic­ans might seek to use all of the res­ult­ing rev­en­ue to cut rates rather than to also re­duce the de­fi­cit, as Demo­crats would de­mand).

The ques­tion is how best to ad­vance that cause. Tra­di­tion­ally, most re­formers have fo­cused on re­trench­ing or elim­in­at­ing in­di­vidu­al de­duc­tions. (Mitt Rom­ney hin­ted at that ap­proach in his over­heard fun­draiser speech last week­end.) But that kind of house-to-house le­gis­lat­ive com­bat is very dif­fi­cult be­cause power­ful con­stitu­en­cies like home build­ers pro­tect all of the ma­jor tax breaks. Among the most ex­pens­ive are the breaks for em­ploy­er-provided health care and pen­sions; the mort­gage-in­terest de­duc­tion; and de­duc­tions for state and loc­al taxes and char­it­able dona­tions.

Head-on as­saults against any of those would prob­ably end like Gal­lipoli. “Go­ing de­duc­tion by de­duc­tion is a path to in­san­ity,” says Steve Bell, seni­or eco­nom­ic ad­viser at the Bi­par­tis­an Policy Cen­ter and who was a Re­pub­lic­an staff dir­ect­or for the Sen­ate Budget Com­mit­tee. “It won’t work.”

The al­tern­at­ive is the Buf­fett Rule ap­proach: cap­ping the total value of the de­duc­tions for tax­pay­ers earn­ing above some spe­cified level. Sep­ar­ate from his Buf­fett plan, Obama has pro­posed to lim­it the value of most tax breaks to 28 per­cent. That would clip tax­pay­ers in only the top two tax brack­ets and raise about $520 bil­lion over the next dec­ade. The Con­gres­sion­al Budget Of­fice cal­cu­lates that lim­it­ing the value of tax breaks to 15 per­cent would raise $1.2 tril­lion over that peri­od (while af­fect­ing a broad­er pool of about one in four tax­pay­ers). Mar­tin Feld­stein, the chair­man of the Coun­cil of Eco­nom­ic Ad­visers in the Re­agan ad­min­is­tra­tion, has coau­thored a plan that would raise much more by cap­ping the total value of de­duc­tions as a share of in­come for all tax filers.

This de­mand-side ap­proach wouldn’t elim­in­ate polit­ic­al op­pos­i­tion to sim­pli­fic­a­tion. But it could make re­form more likely by shift­ing the de­bate from the mer­its of each tax break to their cu­mu­lat­ive im­pact. That in­sight de­serves to live on, even as the Buf­fett Rule re­cedes.

What We're Following See More »
Report: Trump Asked FBI to Deny Russia Stories
2 days ago

"The FBI rejected a recent White House request to publicly knock down media reports about communications between Donald Trump's associates and Russians known to US intelligence during the 2016 presidential campaign, multiple US officials briefed on the matter tell CNN. But a White House official said late Thursday that the request was only made after the FBI indicated to the White House it did not believe the reporting to be accurate."

How Many Signatures Has the Petition for Trump’s Tax Returns Received?
3 days ago

More than 1 million, setting a record. More than 100,000 signatures triggers an official White House response.

Sen. Collins Open to Subpoena of Trump’s Tax Returns
3 days ago

Sen. Susan Collins, who sits on the Intelligence Committee, "said on Wednesday she's open to using a subpoena to investigate President Donald Trump's tax returns for potential connections to Russia." She said the committee is also open to subpoenaing Trump himself. "This is a counter-intelligence operation in many ways," she said of Russia's interference. "That's what our committee specializes in. We are used to probing in depth in this area."

Obama Staffers Launch Group to Monitor Trump Ethics
3 days ago

"Top lawyers who helped the Obama White House craft and hold to rules of conduct believe President Donald Trump and his staff will break ethics norms meant to guard against politicization of the government — and they’ve formed a new group to prepare, and fight. United to Protect Democracy, which draws its name from a line in President Barack Obama’s farewell address that urged his supporters to pick up where he was leaving off, has already raised a $1.5 million operating budget, hired five staffers and has plans to double that in the coming months." Meanwhile, NPR has launched a "Trump Ethics Monitor" to track the resolution of ten ethics-related promises that the president has made.


Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.