Lost amid the power outage and the thrilling finish of Sunday night’s Super Bowl, President Obama made clear in an interview just before the big game that he will seek additional revenue to reduce the deficit not by raising tax rates again but through eliminating the tax credits, deductions and other breaks referred to as tax expenditures because they effectively serve as spending through the tax code. Hopefully, the President’s comments signify that he will support fundamental tax reform that involves simplifying the tax code and broadening the base by eliminating, or at least limiting, tax expenditures, many of which primarily benefit the wealthiest Americans.
President Obama has been saying since the beginning of the year that he supports additional deficit reduction measures, but will only back an approach that balances spending cuts with increased revenue. Sunday’s comments make clear that he will pursue additional revenue through tax expenditures, which are ripe for reform. Just last week, the Joint Committee on Taxation released a report estimating that the federal government will forgo $1.3 trillion in revenue in 2013 because of tax expenditures.
The tax reform proposal in the Simpson-Bowles deficit reduction plan simplifies the tax code, broadens the base and raises additional revenue by eliminating many tax expenditures. Some of the additional revenue is used to lower tax rates for all Americans to promote economic growth while the rest goes directly to deficit reduction. Such an approach is consistent with the principles of the Fix the Debt Campaign, which call for “comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues, and reduces the deficit.”
President Obama also mentioned in the interview the need to reduce spending, specifically mentioning reducing health care costs. Significant savings can be found in entitlement programs like Medicare while strengthening the finances of the programs so that they will effectively serve generations to come. Any comprehensive deficit reduction plan must include tax and entitlement reform.
A smart deficit reduction plan that involves all areas of the budget and is phased in over time can reduce the long-term deficit without harming the short-term economic recovery. As the President said:
There is no doubt we need additional revenue, coupled with smart spending reductions, in order to bring down our deficit. And we can do it in a gradual way so that it doesn’t have a huge impact...that we’re reducing our deficit in a way that doesn’t hamper growth, reduce the kinds of strategies that we need in order to make sure that we’re creating good jobs and a strong middle class.
There are plenty of options for achieving healthcare and revenue savings, there’s a menu here. Now, we just need both sides to work together.