There is little to be gained from limiting deductions or loopholes for corporations, too. The U.S.’s corporate tax simply does not raise much revenue, and the ordinary deductions Democrats would like to take back from oil companies and companies that expand production overseas amount to little revenue. In theory, one could curtail the value of tax benefits, such as those for research and development and depreciation, for “the largest corporations,” but this has never really been proposed.
According to reports last week, President Obama has decided to take a different tack than the Senate: Rather than conjuring up $975 billion in fanciful revenue, his budget, to be released on Wednesday, aims to raise significantly less in taxes, and does so in at least two ways that hit the middle class.
The main chunk of revenue will come from the 28 percent limit I described above, though it’s not clear how much that will raise or exactly what it’ll cover. Then, $100 billion of revenue will be raised from adopting chained CPI, an inflation measurement that rises less slowly than the normal Consumer Price Index, which means that more people will be bumped into higher tax brackets. According to a 2011 analysis by the Tax Policy Center, in 2021, 77 percent of that new revenue would come from Americans making less than $250,000. The president has also proposed funding his pre-K-education proposal with an increase in cigarette taxes, levies that especially burden the middle class and the poor. (The Center for American Progress estimates the project would require $98 billion over the next ten years.)
One other proposal in the president’s budget aptly demonstrates how little revenue can be generated from trying to curb tax benefits for the wealthy: The administration proposes to cap the balance of tax-deferred and tax-exempt retirement accounts at $3 million (anything more than that makes ordinary retirement accounts an abusive loophole, the thinking goes). That will raise the grand sum of $9 billion over the next ten years — while still being quite disruptive for the investment industry.
Some new revenue can come from limiting tax expenditures, and if taxes must be raised, this is not a bad way to do it. But funding our current spending trajectory will require more than such a strategy can feasibly gather, meaning the money will have to come from one (or more) of three places: the middle class, new forms of taxation such as a carbon tax, or politically prohibitive and costly rates on the rich. Discussions of taxes and spending tend to ignore these facts, and Senate Democrats have now committed that ignorance to paper. President Obama has done only a bit better.
— Patrick Brennan is a William F. Buckley Fellow at the National Review Institute.