So yesterday, House GOP leaders offered up their own fiscal cliff proposal. In exchange for substantial spending cuts, the big concession Republicans would make is that they would agree to $800 billion in new revenues. They would not raise tax rates, they would lower rates through tax reform, and produce the new revenues by closing unspecified loopholes and deductions, to be worked out later.
Is this even possible?
The plan is too lacking in detail to say for sure whether the numbers can even be made to work, according to a tax expert I spoke to this morning. He added that based on what we know now, it would require the elimination of so many loopholes and deductions as to be extremely impractical, and probably politically impossible, though the GOP goal is theoretically attainable under certain very narrow conditions.
Republicans have said that the $800 billion in new revenues would come from eliminating loopholes and deductions in a way that only targets those over $250,000. That way, Republicans can argue that their plan doesn’t hit the middle class, only the rich.
The problem, though, is that you’d have to eliminate virtually every significant loophole and deduction that benefits the wealthy to make this possible, according to Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. Worse, if you also want to lower tax rates, as Republicans say they do, it would become even harder.
“If the tax rates are going to be lowered significantly, it’s harder and harder to hit that revenue target,” Williams told me, adding that until Republicans specified what sort of rate cuts they have in mind, it’s impossible to say whether this is even doable.
Williams added that to come within the ballpark of raising $800 billion in new revenues in this fashion, you’d probably have to pare back substantially or eliminate an enormous range of deductions, from the write-offs for employee provided health insurance, interest from municipal bonds, and money invested in retirement plans, to itemized deductions for charitable contributions, state and local taxes, and mortgage interest payments.
Good luck waiting for Congress to eliminate all of those.
“If absolutely everything is on the table, and if the rate cuts are not very large, they can meet the revenue target,” Williams told me. “But given the lack of specifics, it’s impossible to say whether this could be done.”
What all this really means is that we’re back in Mitt Romney territory. Romney, unlike today’s House Republicans, did not propose to raise new revenue through eliminating loopholes, and only proposed that for offsetting the cost of his tax cuts. But Romney’s approach is similar to the one in the new GOP plan, in that neither explains how the numbers can be made to work.
This again underscores how unshakable the GOP refusal to raise tax rates on the rich remains. Rather than acquiesce on that front, Republicans are proposing an approach that would require a staggering array of mathematical gymnastics in order to avoid it. In other words, until we’re given more detail, this new plan has a lot in common with the same old magical thinking.