The question on eliminating deductions versus changing the rate is a really interesting one. In the short term, you could achieve a goal of $X in tax revenue by doing either. The major differences come later, however.
Let's say you eliminate the major deductions like mortgage interest and whatnot and reduce the tax rate from 35% to 28%. The economy starts growing, things are fairly happy, yay for revenue to pay for programs. Legislators start carving out deductions. Deductions are politically pretty easy. You can identify a given group of voters/businesses, target a cut that helps them, then go and explain how you just helped them. That's how we got the deductions we have now, it's a pattern you can guarantee will happen again. It doesn't require big, screaming bills, just chipping away bit by bit, mostly done quietly. Then the economy starts to sour again. Revenues decline while people and states hit hard need more help. Congress could go after the deductions that they've put back in the code but that is politically difficult when times aren't good. And even if they did go in and kill off all the deductions again, you're still only back up to the 28% rate, not 35%. The only way to bring revenues around would be to then go in pass a tax rate increase which is really toxic politically. So the big difference is that if you let the Bush tax cuts expire, you go back to higher starting rates that you can then adjust with deductions. If you remove deductions but lower the base rate, it becomes much more difficult in the future to handle subsequent financial trouble. Prudent would be to set the tax rates back to what they were during the Clinton or Regan years (take your pick), then start reevaluating deductions and paying down the debt during positive economic times. Then when, invariably, we hit an economic down turn again, we'll have lower debt levels to service, a greater ability to stimulate the economy and room in the tax code for targeted deductions that help the hardest hit during that time period. Of course, that would take actual leadership and a willingness to be responsible during good times as well as tough times, so I doubt that will actually happen. Judah On Fri, Oct 12, 2012 at 12:13 PM, Scott Stroz <[email protected]> wrote: > Its hard for me to wrap my head around the fact that, according to > what Rep. Ryan said last night (and I understand that I may have > misunderstood, or even maybe, he misspoke) everyone will get a 20% > across-the-board tax cut, but the difference will be made up by > eliminating loopholes and deductions only 'for the wealthy'. Everyone > gets cuts, but only the wealthy will make up the difference? How are > wealthy people behind this plan if they are the ones stuck with the > bill? In the end, how is that any different than letting the Bush-era > tax cuts expire only for the wealthy? > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Order the Adobe Coldfusion Anthology now! http://www.amazon.com/Adobe-Coldfusion-Anthology/dp/1430272155/?tag=houseoffusion Archive: http://www.houseoffusion.com/groups/cf-community/message.cfm/messageid:356053 Subscription: http://www.houseoffusion.com/groups/cf-community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/groups/cf-community/unsubscribe.cfm
