When I made these arguments in the past, I quickly ran into a political buzz saw. The mortgage interest deduction, for example, has deep support among homeowners who fear that its elimination would cause their home prices to fall. That is because the deduction is capitalized into home values, strongly influencing the prices people are willing to pay for houses. And the 1.2 million-member National Association of Realtors, one of the most powerful trade associations in Washington, will fight to the death to keep the mortgage interest deduction.
State and local governments will fight equally hard to keep the state and local tax deduction, fearing, rightly, that it would constitute a de facto increase in the state and local tax burden. When the Reagan administration floated this idea back in 1984, governors and mayors blanketed Capitol Hill, forcing it to withdraw this recommendation when its tax reform proposal was sent to Congress in 1985.
Needless to say, any tampering with the health insurance exclusion will bring forth massive opposition from workers, employers, insurers and health-care providers.
The only way one could even hope to begin to take on such hugely popular tax provisions would be if there were a really large payoff at the end. The prospect of a flat-rate income tax of 20 percent or so might provide such a payoff. But even with that as compensation for the lost provisions, it would be a very difficult political battle.
Unfortunately, the tax commission is offering virtually nothing in return for giving up extremely popular deductions and exclusions. We would be hardly any closer to a flat rate if its proposals were adopted than we are now. Elimination of the misguided AMT would be all to the good, but at present fewer than 3 percent of people pay it. Although the AMT is scheduled to rise in coming years, hardly any of those who will benefit from its repeal know who they are and will be greatly outnumbered by those who will suffer from the lost deductions.
In short, the tax commission proposals are deeply imbalanced politically. Therefore, there is no chance whatsoever that Congress will adopt either one. The Treasury Department and the White House may find some way to salvage a more politically attractive tax reform proposal from the commission report, but unfortunately, they have little to work with.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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