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Tax Reform Is for Suckers

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Tax reform is a wonderful subject; after all, it is the great American fantasy.

On the surface, it is an idea whose time is rushing to the forefront of American life. In a 2011 Pew Research Center poll, 59% believed the tax code was so bad, it could not be improved; rather, Congress should "completely change it." If anything, that figure has gone up by now, as the din grows louder. And every one of those respondents was sincere.

The problem -- and it is a damning one -- appears the instant you discuss specifics. Any specific tax exemption, in fact.

Let us start with a little piece of history always ignored by the advocates of easy, effective tax reform. The reality is, each and every tax exemption (those nasty things the reformers want to eliminate) came about because of a lobbying campaign by some sector of American society. A sector which is also prepared to defend their precious loophole to the death, or at least with all the cash, expertise, and influence it can muster. When it comes to tax exemptions, there are no orphans.

Let's just tackle some big ones, issues that would really impact the deficit. There's no point in getting bogged down in all the disputes that would follow any attempt to dump thousands of small tax breaks or subsidies to specific industries or groups, all of whom would fight like the devil, their backs to the wall. Talk about attrition; it would make World War One's Western Front look like a day at the shore.

Thus, according to the New York Times,

The tax breaks that cost the government the most money turn out to be overwhelmingly popular. The three largest are those for health insurance provided by employers, mortgage interest and 401(k)s.

The middle of these is a case in point. Clearly there is support for its elimination; it was, after all, a centerpiece of the Simpson-Bowles plan that everyone is now acclaiming, from President Obama on down.

Note also how effective this change would be, what kind of deficit reduction it would produce. The web site Daily Finance reported,

According to the Treasury Department, the budget for 2012 projects that the mortgage interest deduction will cost the budget around $100 billion. But Eric Toder, co-director of the Urban-Brookings Tax Policy Center in Washington, estimates that elimination of the deduction would only generate $70 billion to $80 billion, because some people would pay off their mortgages early if the law is changed.

Either way, that would take a big chunk out of the deficit that all Americans are so worried about. Who could oppose such an untrammelled benefit? Who would dare?

Let's start with the real estate industry. The real estate market in this country is a $205 billion economic powerhouse. There were also 466,000 brokers in this country in 2010, even during the downturn. Do you suppose they might be willing to spend a shekel or two on lobbying or an advertising campaign to save that nasty deduction?

Keep in mind, too, on what fertile grounds their efforts would fall. A poll by USA Today and Gallup found 61% of our countrymen opposed to eliminating this deduction.

So once they got going, they could mobilize an army, one far larger than the force our military commands. After all, according to the U.S. Census there are 75 million homeowners, all of whom might object to your noble idea of tax changes.

Thus, tax reform is a boondoggle, a dodge. When Paul Ryan puts forth a budget based in large part on details that will only be specified later, he is pulling a three-card monte game on voters.

Everyone likes the idea of reforming the tax code and getting rid of exemptions. The other guy's exemptions. Only. And we all, in our specific pockets, will fight and vote and contribute to protect our own precious little deduction.

This is a shell game, a false set of promises, 'til someone comes along that can build a coalition in favor of shared sacrifice, where everyone takes a hit, and no one suffers unbearably. I don't expect to see that in my lifetime.

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