NOW that the election is over, Washington's attention is consumed by the looming combination of automatic spending cuts and tax increases known as "the fiscal cliff." That combination poses risks, including economic contraction and erosion of confidence in government. But it also offers a chance to address our unsustainable and dangerous fiscal trajectory.
Much of the current energy around establishing sound fiscal conditions is focused on plans that theoretically would both contribute revenue to deficit reduction and significantly reduce individual income tax rates. Though hugely appealing, that's a tall order.
These plans rely on reducing or eliminating many tax deductions, exclusions and the like, known collectively as tax expenditures. Reducing tax expenditures to pay for both lower personal income tax rates and deficit reduction may seem like a politically attractive alternative to raising tax rates or cutting entitlements or other spending.
However, many of these tax expenditures are important and popular policy programs on which people now rely. They include the deductibility of mortgage interest, charitable contributions and the exclusion from income of employer-provided health insurance. Some tax expenditures should be cut back and reformed. But when the substantive effects and political realities of large-scale reductions are examined, it becomes clear that there would not be sufficient savings to reduce tax rates and also cut the deficit.