Itemized Deductions are under Assault in the Bottom Line’s Challenge

R. Williams (a senior fellow), R. Altshuler (director) and K. Lim (a research associate) from the Tax Policy Center (TPC) joined the CRFB’s blog Spending Challenge. Remember Big Bureaucracy’s proposal in the challenge was a 10-15% cut all across the US federal government to bring down the deficit gap. Let’s see what TPC proposes: more new taxes.
In a well supported with data paper named Desperately Seeking Revenue the authors sum up the reasons for the current inability of the Congress to make a move in any direction toward reducing the deficits.

Despite concerns about rising deficits, few people want to see either tax increases or substantial spending cuts during the current economic downturn. Furthermore, few if any policymakers want to see the Bush tax cuts expire entirely, fearing the depressing effect on the economy of such a massive tax increase.

It is a very realistic assessment of the way Washington DC moves: trying to make everybody happy and making everybody miserable in result. TPC goes on to examine 5 models of tax-hikes that would reach the goal to reduce the deficit to an average of 3 percent of GDP (the Obama Administration goal). Three of the models are about income tax increase (progressive one that hits the rich harder) and the other two are about eliminating or reducing the itemized tax deductions.
Although all taxes are evil – the assault on the itemized deductions (like deducting your red nose if you have a business providing clowns to birthday parties) is a spear in the heart of the small business. You know government cannot provide a job for everybody unless it is a Soviet government. When the Big Business kicks the people out of work and unemployment hits the double digits it will be the small business opportunities that will get the folks working again. When people give up on the job market they start thinking about opening a farm, a Daddy’s daycare center, creating new software or something. Let’s give the folks a chance to deduct the shovel, the Lysol and the computer, heh?

How about for a change turn to those who are marginalized and don’t participate in the tax process. It will be an interesting project to see a model by TPC that projects the effects of the eliminating the Earned Income Tax Credit. That will make a lot of people to participate with their fair share in the tax burden in America. Just saying!

The paper ends with the horrific idea of imposing an added-value tax (VAT), like the one they have in Europe. The Speaker Nancy Pelosi rolled that out of her mouth too few months ago. This is a bad, bad idea for America. Europe has this tax and VAT is famous with attracting the organized crime. The latest example is the EU cap-and-trade project that was hacked by the organized crime and stung with over 5 billion dollars through the value-added tax. It is a tax that creates huge amounts of paperwork and bureaucracy. The money trails often get lost especially when international trade is involved. Last thing we want is the US taxpayer dollars to be disappearing into added-value tax offshore heaven accounts.
Take a step back and have some tea!

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