My Latest Column: Base-Broadening as an Instrument of Conservative Tax Reform

by Reihan Salam

In my experience, it is never a good sign when Ramesh Ponnuru disagrees with you. But earlier today, Ramesh made the case that base-broadening tax reform is a political non-starter: eliminating the exclusion of employer-provided health insurance from income and payroll taxes would be extremely disruptive, though reforming it is desirable; the tax preference for capital income is, as Alan Viard has argued, “imperfect, but useful“; the mortgage interest deduction is politically sacrosanct; the tax credit for children is best understood as “as a partial corrective to other federal policies,” e.g., the fact that parental investment in the human capital investment of the next generation is treated less favorably than other forms of investment; the charitable tax deduction is a very good thing; and while there is no strong case for the state and local tax deduction, politicians representing high-tax jurisdictions will fight it vigorously.

My latest column, in contrast, argues that there are a number of base-broadening measures — eliminating the state and local tax deduction, shrinking the mortgage interest deduction, curbing the tax-exempt status of municipal-bond interest, and overhauling the charitable tax deduction to make it more valuable for non-filers and somewhat less valuable for high-earners — that would advance conservative policy goals and that might prove politically advantageous. Substantively, I don’t disagree with much of Ramesh’s analysis, but I think that tweaks to some of the most popular tax expenditures could yield significant long-term benefits, including political benefits.