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The GOP’s evolving case against taxes

By Ezra Klein,

There are two ways to increase taxes. One is you just raise rates, particularly the top rates. Economists in general — and Republican economists in particular — don’t much like this approach because it raises taxes on the last dollars you’ve earned. That discourages productive people from doing more work, or so goes the argument.

The other is you close loopholes and eliminate tax breaks. Economists prefer this approach because rather than raising taxes on doing more work, it equalizes taxes across the range of goods people can buy with their money. The mortgage-interest deduction, for instance, encourages people to spend more on housing than they otherwise would. If you took it away — and no one will, but just for the sake of argument — people would have the same incentive to do more work, but there wouldn’t be a tax break encouraging them to spend their money on housing rather than on other goods. Economists see that as a win-win.

This is the conversation David Brooks was alluding to yesterday when he wrote that Republicans are “not being asked to raise marginal tax rates in a way that might pervert incentives,” but rather “to close loopholes and eliminate tax expenditures that are themselves distortionary.” If you believe in a free market and balanced budget, flattening the tax code is a no-brainer. Glenn Hubbard, dean of Columbia’s Business School and one of the architects of the Bush tax cuts, would tell you the same thing, and so would Alan Greenspan. But Paul Ryan disagrees

What happens if you do what he’s saying, is then you can’t lower tax rates. So it does affect marginal tax rates. In order to lower marginal tax rates, you have to take away those loopholes so you can lower those tax rates. If you want to do what we call being revenue neutral. … If you take a deal like that, you’re necessarily requiring tax rates to be higher for everybody. You need lower tax rates by going after tax loopholes. If you take away the tax loopholes without lowering tax rates, then you deny Congress the ability to lower everybody’s tax rates and you keep people’s tax rates high.
Do you see what he did there? Because you could close tax loopholes and use the money to lower rates, closing tax loopholes and using the money to lower the deficit doesn’t just mean higher taxes, but it’s the same thing as higher tax rates. In practice, of course, it doesn’t mean higher tax rates: They’ll remain the same, or even go down if some of the money is used to lower rates. But it means higher rates against a hypothetical decision to lower rates further, and Ryan is treating that as equivalent to an increase in marginal tax rates.

This stuff can take you pretty far down the rabbit hole, but the bottom line is that the Republican Party’s opposition to taxes is no longer based on any recognizable economic theory and appears impervious to all efforts to design taxes that respect the policy reasons that conservative economists have traditionally given for resisting tax increases. A lot of people have hypothesized that Ryan, in being more policy-oriented than many members of his party, is more aware of the need for higher taxes than many members of his party. What we’ve learned in recent months is that that isn’t true: He’s just better at developing complicated rationales that make increasingly extreme positions sound like garden-variety policy points.

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