Not All "Tax Hikes" Are Bad

“What Boehner’s trying to accomplish will literally change the fiscal trajectory of the country.”

-- Rep. Tom Cole (R-Okla.)

Until he changed his mind yesterday, Speaker John Boehner was headed for trouble with the talk radio set: "He's a socialist! He wants to raise taxes by $1 trillion!!! He’s betraying us!" Unfortunately, that reaction is both wrong and highly destructive to conservatism. Let’s discuss.

Here’s what happened. With the government bumping up against the debt ceiling, Obama and the Republicans are busy negotiating a debt reduction deal. On the table were two possible deals. One deal involves $2 trillion in cuts over the next ten years. The other deal involves $4 trillion in cuts, including structural changes to Medicare and Social Security. But the $4 trillion deal would have include $1 trillion in tax hikes. Specifically, this would have involved an across-the-board reduction in tax rates, including corporate tax rates, offset by the elimination of tax “loopholes,” i.e. deductions.

Until last night, Boehner was working on the $4 trillion deal and most conservatives in Congress were waiting patiently to see what was on the table before commenting. But in the idiotsphere, talk radio went on the attack without having a clue what they were talking about. They heard that this would involve “tax hikes” because the elimination of deductions will result in an increase in taxes. Increased taxes are bad. Hence: “Boehner is a socialist! Get your pitchforks!” But this is stupid. . . there is no kinder way to put this.

For decades, most people on the right have advocated reform of the tax code -- usually a flattening of rates and a simplification of the code. Remember all the talk about doing your taxes “on a post card”? Even the current Presidential candidates (except Santorum) are advocating some form of “tax reform” to “simplify the tax code.” But you can’t simplify the tax code without eliminating parts of it. And if you eliminate parts of it, then you are by definition raising taxes on the people who can no longer use the deductions you eliminate. Thus, if we accept the argument of these self-proclaimed conservative purists on the radio, then basically all tax reform will result in tax increases and should be opposed. Who knew so many talk radio guys thought the IRS code was inviolate?

We should reject this stupidity and instead look at what is cut to decide whether a particular reform is a good one. Indeed, some deductions should be cut. For example, we should eliminate any deduction that is not a generalized deduction that any taxpayer can claim. In other words, if a deduction is industry specific (or company specific), then we shouldn’t be too troubled by this “tax hike.” These are deductions that were put into the code by well-connected lobbyists to benefit individual industries or companies and they are a distortion of the free market and an abuse of power. Eliminating them is a good thing and should not be attacked as a tax hike. Examples of this include ethanol-related deductions (though Norquist disagrees), or deductions which make it cheaper to shift jobs overseas, which let companies use pre-tax money to lobby, or which allow credit card companies to deduct faked bad debts from their profits.

A classic example of such deductions are the deductions put into the code by Charlie Rangel, who gave $2.8 billion in tax breaks to British alcohol giant Diageo and who created a deduction that only four companies in the USA can qualify for. . . all contributors naturally. (see Rangel, No. 9).

We also shouldn’t be troubled by the elimination of deductions that exist for social engineering purposes, such as the deduction for the purchase of electric cars or going solar. Indeed, the government should not be using the tax code to tell us how to live and should not be subsidizing products which the free market has rejected. Again, we should not be attacking the elimination of these deductions as “tax hikes.”

The problem here, as increasingly is becoming the case, is that people who don’t know what they are talking about react to the characterization of these reforms as “tax hikes” and throw a hissyfit. If we are to remake the government along conservative lines, we’re going to have to shut these idiots up or get people to stop listening. When conservatives like Rush Limbaugh can with a straight face claim that wiping out Charlie Rangel’s friends’ dirty tax break is an intolerable “tax hike,” conservatism has lost its way and all Rush is doing is doing the bidding of the Democrats and K-Street by leaving in place a corrupt and complex tax code that is packed with handouts for the well-connected.

This is very frustrating.