The Federal Budget Battle Continues

Monday, April 18, 2011

Copies of the administrations 2012 Budget proposal at the Senate Budget Committee on February14, 2011 in Washington, DC. (Mark Wilson/Getty)

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Reihan SalamNational Review contributor who writes "The Agenda", the National Review's domestic policy blog, talked about the budget battles in Congress from a right-of-center point of view.

The President and House Committee Chairman, Rep. Paul Ryan (R), continue to battle over how to reduce the deficit and their federal budget plans. But Reihan Salam said he's hopeful about the path they're on and sees the potential for compromise. 

There has even been some agreement between the President and Rep. Ryan — on cleaning up tax expenditures.

How do tax expenditures work?

According to Salam, the federal government engages in a lot of social policy through the tax code by giving incentives and deductions called tax expenditures, but this is problematic and it's doing the opposite of what we need it to do, he said.

We lose a lot of revenue by telling people, hey, if you're buying a house and spending money on mortgage interest, that's going to be tax free up to X amount. We say the same thing for employer sponsored health insurance coverage and a lot of other things. The problem is these tax expenditures are a really bad way of making government policy.

If you say that we're going to give a huge tax break to employer sponsored coverage, it has a number of ill effects. One of them is that if you don't get health coverage through your job, guess what? You don't get the subsidy. Or if you pay higher taxes because you have a higher income, well you get a bigger tax break than someone who makes less money which creates this very ironic situation where we're effectively channeling more of this government money to people who don't need it than to people who do.

The 'agreement' between Obama and Ryan

Salam argued, that though there is some consensus between Ryan and Obama in their desire to save money by cleaning up these expenditures, there's still a subtle difference in their arguments. Obama has said he wants to curve tax expenditures for the top two percent, but according to Salam, this step isn't big enough.

The thing is that there are a ton of households who are making between about $100,000 and $250,000 a year who benefit tremendously from these tax expenditures and if you don't curb the tax expenditures for those guys, you're not going to make the progress you need to make.

I think that what Paul Ryan is saying, and what the President has suggested at different points, is that [tax expenditures] are disproportionately used by higher income Americans but the thing is that in terms of the U.S., the median household income is a little bit above $50,000, so while in a place in New York City, it seems like a guy who's making $150,000 who owns a condo, you're squarely in the middle class and that might be true, but in terms of the country you're pretty affluent so when you're using that tax break, you're using something that is benefiting a more affluent household over a less affluent household...

It's all about the tax code

Salam said, Rep. Paul is arguing for a more even playing field in the tax code. And this is why:

The tax code right now is treating households making the same amount of money really really differently depending on other characteristics. So, let's say you are, like me, a renter. A renter and and a homeowner at about the same level of income are treated very different because the renter is taking a big hit where as the homeowner is getting this big tax subsidy through the tax code. So, in that sense New Yorkers in particular get a really raw deal from the way the tax code works...

So, what is the most efficient way to raise tax revenue?

Tax expenditures are really opaque. People don't fully understand them and they really have a very unfair impact...So, we're spending a hundred billion dollars every year on the mortgage interest tax deduction that lest we forget, doesn't give renters a dime and the Bush tax cuts for high earners...that a lot of folks on the left-of-center side were attacking, that cost $700 billion over ten years so you actually get much more revenue by getting rid of that one tax expenditure, let alone a lot of other less justifiable tax expenditures, than you would from raising those marginal tax rates...There's a lot of consensus among economist that tax expenditures are just bad any way you slice it.

What's ahead?

As for the bipartisan "Gang of Six," who are charged with creating a deficit reduction compromise, Salam said he's hopeful. The group is a good representation of conservative and liberal sides of the coin, he said. And it's not the only thing Salam finds encouraging.

People have focused on how far apart the President and Paul Ryan are, but we suddenly are leaving this realm of shadow boxing and kabuki theater of debating the budget and talking about the real things we'd have to do, the real visions for getting us off this high debt path.



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Comments [10]

Paul Gordon

It is very easy to fix the Federal budget. Here is the new “Green Budget”:
Every person and company pays 15% income tax. There are no longer any deductions or itemizations. Money located anywhere in the world is taxed. Individuals can take 5% off of that if they vote in the Federal Election.
No Federal subsidies are paid to any company that is profitable.
No Federal agency can hire more than 800 people in Washington DC.
The Pentagon gets $300B per year.
Any other country that gets Federal military or social aid gets a bill for it and if they can’t pay it will turn into an interest bearing loan.
Every resident of the US gets $300/mo. for medical help. It is no longer legal for a medical provider to operate if they do not provide at least three $300/mo. insurance programs. It is illegal for a medical provider to use exclusions. If you make over $300,000.00 per year you do not get this.
Every agency must post its use-of-funds budget online for comments 6 months before they get to use their money. The Federal OMB office would have police authority to prosecute abuse.
Believe it or not, that would pretty much fix our budget problems!

Apr. 22 2011 11:54 AM

I'm with David, RLewis, and especially Eli & Nate.
You asked Salam a good clarifying question as to whether Ryan was being contradictory to say that we need to close loopholes and lower taxes.
That of course got us right to the heart of this question about the social implications of tax expenditure policy.
But then he proposes the "Swedish" model, where front-end regressive taxes like VAT get redistributed in the form of high-quality social services.
And you let him get away with that when Paul Ryan is proposing the obliteration of our bad excuse for a welfare state! The contradiction you were noticing didn't go away, Brian--it was exacerbated.
I vote for more aggressive follow-up questions during policy segments if you're not going to have a guest from the other side of the spectrum.

Apr. 18 2011 03:28 PM
Nate Bowman


Please, before again disseminating the view that Mr. Ryan's budget is worth talking about, read this analysis:

Mr. Ryan assumes, among other things, that unemployment will immediately plummet and end up at 2.8% and that, as a percentage of GDP, government expenditures (outside of healthcare and Social Security) will decrease from 12% to 3/5%

Apr. 18 2011 10:48 AM
susan from NYC

At the risk of repeating myself, what is needed is the following:
1. Eliminate ALL deductions (that means mortgage, charity, child, state and local tax, etc.) If Congress really thinks something is worth supporting, they will have to appropriate funds for it openly and defend the decision. After all, every deduction someone gets means everyone else pays more, since government must still be funded.
2. Institute a single, progressive income tax that covers ALL income--there is no reason to tax income one does not work for (i.e., capital gains) at a lower rate than income one puts in time and effort to earn. Set these rates to actually cover our obligations. Now that the Supreme Court has recognized corporations as persons with equal free speech rights, tax them at the same rates as persons.
3. Disallow any political contributions from non-constituents--representative government can only function if those in office actually represent those who elected them rather than those with deep pockets. Set representative pay and privileges at the mean for their constituents.
The current system breeds distrust and contempt, as our purported representatives ignore their constituents in favor of their corporate paymasters, obscuring their bought-and-paid-for favors with endless, incomprehensible layers of taxes and deductions.

Apr. 18 2011 10:21 AM
eli from astoria

These guys will use any tricky argument they can think of to lower taxes on rich people in the name of "fairness".
anyone who thinks differently is not paying attention.

Apr. 18 2011 10:17 AM
bob from Manhattan

The New York times magazine this sunday

the top three biggest tax breaks

1 Exclusion for employee Provided Health Insurance.

(slightly more than the budgets of the department of Ed, Home land security, Justice, State and veteran Affairs)

2 Mortgage Interest deduction

3 Lost revenue from tax breaks for investors

would love to hear comments on this

Apr. 18 2011 10:15 AM
Nate Bowman


The budget did not take away funding for abortions. That was taken away in 1976 by the Hyde amendment which, in various ways, has been added as a rider since then.

What conservative legislators are trying to eliminate is the other 97% of what Planned Parenthood does, mainly cancer screenings, STD tests, family planning and contraception.

Apr. 18 2011 10:15 AM
RLewis from the Bowery

But you keep listening, Martin. There's enough folks from the WSJ on this station. More than I'd like. So, you need to just stuff it, dude.

Apr. 18 2011 10:14 AM
Martin Chuzzlewit from Manhattan

....."from a right-of-center point of view" ????!!!!

When Joe Nocera and Jonathan Alter discussed the budget here last week with their usual radically left point of view...... there was no qualification by this show's producers of their extreme biases.

THIS IS WHY THERE SHOULD BE AN END TO ALL PUBLIC FUNDING OF PUBLIC RADIO. It is not the "people's" radio.....but the voice of urban elitist lefties.

Apr. 18 2011 10:11 AM
David from West Hempstead

So small businesses are going to take their jobs overseas now?

Apr. 18 2011 10:09 AM

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