The deal struck between Senate Majority Leader Harry Reid and House Ways and Means Chair Dave Camp on the so-called tax extenders has a number of obvious flaws. Its benefits accrue almost entirely to big business, it does little for the poor, it hurts the environment, and it increases the deficit by more than $400 billion. Even worse, it increases the deficit by permanently lowering government revenues, making it harder to finance liberal policies in the future.
To fully appreciate how bad this deal is, it’s worth comparing it to other, revenue-increasing policies that Democrats support. For instance, liberals have long sought to close the carried-interest loophole, which allows hedge fund managers to pay the taxes on their wage income at the lower rate for capital gains. But doing so would raise just $17.4 billion over the next 10 years—less than 1/20th of the revenue lost from the tax extenders deal. A final transactions tax would raise $180 billion during the next decade. The gas tax would have to increase by nearly 200 percent to make up for the lost revenue from this tax extender deal. Here are a few other policies for comparison:
The Congressional Budget Office projects that the federal government will collect $40 trillion in revenue over the next 10 years. That means the tax extender deal would reduce those revenues by around 1 percent. If that happens and Congress takes up tax reform next year, it would start from a lower revenue baseline, meaning a revenue-neutral tax reform deal will produce less money to fund Democratic initiatives like universal pre-K or an expansion of Social Security. It’s another important reason to kill this deal.