Thursday, December 2, 2010

A short term extension

of both the tax cuts might actually be good for the deficit commission, the ensuing discussion and our ability to actually address the long term issues. Extending them both forever is a disaster if you are interested in a balanced budget. The current tax code won't produce anywhere near the amount of revenue needed to fund any level of spending that has any chance of being enacted. It will raise 16-17% of GDP in a good economy; maybe 5% of the country wants the cuts that would be necessary to make spending that low.

The current tax code as the default, and therefore perpetual and growing deficits, may make a large scale tax reform like proposed by the Commission report that gets rid of many/most tax expenditures just about the only way to proceed politically. Because you can say (correctly) that you will be lowering rates. And increasing fairness. And doing it in a progressive manner, because most of the tax expenditures help those with higher incomes. And it will be good in health policy terms because that may be the only way we will actually address (cap, maybe end some day) the tax exclusion of employer paid health insurance, which is easily the best, simplest and most straightforward way to slow health care cost inflation.

Extend them both for a period of time, and then get down to business.

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