Getting Specific on Tax Reform — Should Romney and Ryan Be Bold?

14 Aug

Below are excerpts from a column by Nicole Gelinas. Her column is titled “Radicalizing Romney-Ryan”, and provides, I think, serious food for thought.  Ms. Gelinas is a contributing editor to the Manhattan Institute’s City Journal.  The entire column can be found at

http://www.city-journal.org/2012/eon0813ng.html

 Excerpts:  [Bolding is mine]

.  .  .  . Mitt Romney wants to lower tax rates.  .  .  .  Paul Ryan wants to cut spending by taking on America’s entitlement culture. The new ticket can marry these two ideas  .  .  .  introducing a plan to eliminate the biggest middle-class entitlements of all: cheap mortgages and employer-provided health care.

Romney’s “Believe in America” campaign blueprint and Ryan’s “Path to Prosperity” budget map present the candidates’ viewpoints clearly. Romney wants “a fundamental redesign of our tax system.  .  .  .  To pay for tax-rate reductions  .  .  . he’d make the tax code “simpler” and “more efficient.” These are code phrases for taking away deductions, though he doesn’t say which ones. Ryan is more aggressive, saying that he’d .  .  .  pay for these lower rates by “clear[ing] out special interest loopholes”.  .  .  .All fine—but Ryan, like Romney, never says whichloopholes he would eliminate.

.  .  .  Romney and Ryan should target the places where the money is. Between 2010 and 2014, according to Congress’s Joint Committee on Taxation, the federal government will spend $659.4 billion on allowing employers to pay for their employees’ health insurance with pretax income and $484.1 billion on allowing homeowners to deduct their mortgage-interest costs from their income. These are the two biggest tax breaks for individual filers (the first of the two counts as an individual break, not a corporate one, because it benefits individual people).

If Romney and Ryan are looking for tax breaks that “distort economic growth,” they don’t have to look far beyond these two items. Employers’ paying for workers’ health care out of [pre-tax] money .  .  . makes it impossible to create a real market for individual health insurance. Only when .  .  . Americans see how much health insurance actually costs .  .  .  and stop thinking of it as a perk of working for the Man, will we finally see real health-care reform.  .  .  . 

The mortgage-interest deduction .  .  .  . Between 2000 and 2007, mortgage debt doubled, and the government subsidized much of that borrowing. People could buy houses that they couldn’t afford and justify the purchases by saying they were lowering their taxes.  .  .  . 

.  .  .  .  The candidates could propose a bill that would gradually phase out both deductions, removing 10 percentage points of today’s benefit each year over a decade until there was nothing left. Such a proposal would constitute a cut in spending, though critics on both the left and the right would condemn it as a tax hike. When the government pays you to borrow hundreds of thousands of dollars to buy a house, it’s spending money. When the government gives you generous deductions for acting in a particular way, it’s spending money.

.  .  .  voters would howl. People wouldn’t like paying more—directly, at least—for health care than they had before, and they wouldn’t want to lose an arrangement in which someone else pays for such a big chunk of their home-mortgage expenses. But then, welfare recipients didn’t like it at first when the feds reformed welfare. For that matter, today’s Americans shouldn’t feel grateful that the government rewards them for behaving exactly the way that it wants them to behave. They should feel insulted.

The GOP must attack these hidden entitlements. How will Washington ever be able to reform Medicare if it can’t even tell affluent people that it will no longer pick up part of the tab for their four-bedroom house? What’s the point of going after corporate-tax loopholes when the two biggest corporate-tax breaks constitute barely a tenth of the money that Washington spends each year on employer-paid health care and mortgage interest? How can Washington cut food stamps when it’s subsidizing Lipitor and Ambien for the middle class?

If Romney and Ryan make genuine tax reform a key part of their agenda, the election will show who Americans really are. Do we want fair taxes that enable individual choice? Or do we want a government that hands out goodies when we do what it wants us to do? However we answer, it’s better to know sooner than later.

[End of Excerpts]

As much as I would hate to lose my mortgage deduction, Ms. Gelinas provides some compelling reasons for considering ending these two high-impact taxpayer benefits.

Your thoughts?  Could a Romney/Ryan ticket ever win with such a plan?  Is Ms. Gelinas really pro-Obama and wants to witness the Obama landslide if Romney and Ryan get specific?

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2 Responses to “Getting Specific on Tax Reform — Should Romney and Ryan Be Bold?”

  1. Joseph Edward Wages August 14, 2012 at 4:54 pm #

    Gelinas displays the mindset that everything belongs to the government and therefore whatever they let you keep is government spending. I agree that these two perks are suspect. Especially the employer paid heath care deductions. But to eliminate them is not to cut government spending.

    There are of course bushels of “tax deductions” that could and should be eliminated but neither are these this government spending. Cutting spending is eliminating such items as retirement plans for congressmen, wasteful spending on defense and just about everything else, bonuses for government employees, concessions to government worker unions, junkets for congress and government workers, subsidies for agriculture and many other private sector enterprises, and the list goes on and on.

    By the way failing to honor the “Special Social Security bonds” in the infamous lock box might be cutting spending but I call that “out and out fraud”.

    Check here for a few more examples — http://www.oyetimes.com/news/america/27710-stupid-spending-government-waste-in-action

    • illero August 14, 2012 at 5:09 pm #

      Thanks for the comment. My inclination is in your direction, yet I am tempted to support Gelinas in her assertion that these deductions constitute spending from the base tax revenues. It could be argued that they look a lot like the Earned Income Credit, except that they are advance payment on what otherwise might be a refund (as the EIC is).

      Nevertheless, if we’re going to do a step-wise improvement of our tax system rather than a total reform, reduction of tax rates will probably have to be accompanied by a reduction of allowable deductions, as well – accompanied, of course, by REAL spending cuts, which have not truly materialized anywhere, to any degree.

      On another topic, I tried setting up notifications of your postings through Google, but that does not seem to have worked. Guess I should play with it a little more. Do you see anything on your end showing me as a ‘follower”?

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