In the aftermath of this month's election, Democrats have renewed the push for higher tax rates on top earners. Republicans have cautiously suggested that they might be in favor of "raising revenue," but not raising tax rates. The most obvious way to get additional revenue without higher rates is to close carve-outs and loopholes. But as Politico notes, there are limits to how much money closing loopholes can raise:
The biggest loopholes in the U.S. Tax Code — generally referred to as tax expenditures — aren't just the tricks of the trade for millionaires with offshore bank accounts. For the vast majority of Americans, they're just how things work: You don't pay taxes on your health insurance or Medicare benefits; you contribute tax-free to your 401(k); and your mortgage interest pushes down your tax bill each year.
And even if you dump the biggest of the set, these tax perks don't even come close to closing the deficit. At best, the top 10 would pull in an extra $834 billion a year, according to Joint Committee on Taxation figures. Considering the hole lawmakers are trying to fill is several trillion dollars large, it's clear they wouldn't even come close.
Officials in the Obama administration have relied on these sorts of figures to argue that, well, tax rates are just going to have to go up. There's not other possible alternative! "I don't see how you do this without higher rates. I don't think there's any feasible, realistic way to do it," Treasury Secretary Timothy Geithner said earlier this month, according to The Washington Post. "When you take a cold, hard look at the amount of resources you can raise from that top 2 percent of Americans through limiting deductions, you will find yourself disappointed relative to the magnitude of the revenue increases that we need."
Take a look at the last few words there: "the revenue increases that we need." That tells you a lot about how the Obama administration understands the federal budget. High government spending is assumed as a given. The only question is who to tax in order to pay for it. It's as if the Obama administration can't conceive of any alternative, like, say, limiting the amount of resources the federal government consumes, and looking for ways to actually cut spending.