Capping Deductions Isn’t a Cure-All

How do you get tax reform when everyone believes that lower rates and fewer tax expenditures is a good overall policy, but no one is willing to give up their tax breaks? Mitt Romney is floating a plan to just put an overall cap on deductions. Matt Yglesias endorses it as a “clever plan” and says, “The big advantage is that since no particular deduction is eliminated, you don’t reap the fury of the impacted interest groups in the same way.” Ezra Klein is also positive. And I am too, but note the questions Klein asks:

This leaves a lot of unanswered questions. For instance, which deductions are covered in the $17,000 cap? Is it only the deductions he mentioned? Is it all itemized deductions? Is the state and local tax deduction in there? Is it really going to include the exclusion for employer-based health care? Is the cap in addition to, or instead of, the standard deduction? Do individual taxpayers have a lower cap than families? 

See, that’s the problem. The first thing you’re going to get if this goes to Ways and Means is a whole bunch of very virtuous lobbies insisting that they get carved out from it. What, you’re going to make it so that if I give lots of charity I don’t get the mortgage deduction that my cheapskate neighbor can take? And if Congress (and Romney) start giving in on one deduction, then the floodgates open for everyone else to exempt their deduction from the deal.

So does that make it not worth trying? Maybe, maybe not. What’s far more important (as Greg Sargent flagged yesterday) is that in reality what we’re likely to get from Romney is big tax cuts with token deduction elimination. But when it comes to doing actual tax reform, there’s really no way to get around the fact that there are going to be winners and losers, and the losers are going to make an awful lot of noise. Doesn’t make it impossible — and I’m open to the idea that capping deductions would make it slightly easier — but no one should fool themselves about how difficult it would be, or that there’s a magic formula that can make it all work out.

[Cross-posted at A plain blog about politics]

Jonathan Bernstein

Jonathan Bernstein is a political scientist who writes about American politics, especially the presidency, Congress, parties, and elections.