SPERLING: A Mere Cap On Deductions Won't Generate Enough Revenue

Photo: flickr/joao_trindade

Two of the top economic advisors at the White House recently posted on the White House blog to make the case that limiting deductions won’t raise enough revenue to get the nation back to fiscal health.This exercise, obviously, implicitly makes the case for raising rates rather than lowering deductions as the preferred policy vehicle for increasing revenues – something that is certain to be a sticking point during Fiscal Cliff negotiations.

Gene Sperling, Director of the National Economic Council, and Jason Furman, Assistant to the President for Economic Policy, delivered this not-too-subtle jab at Republicans who argue that sufficient revenues can be generate through capping deductions:

Some have suggested that limits on high-income tax expenditures could substitute for rate increases and that it would be possible to raise $1 trillion or more while keeping the top income tax rate at 35 per cent. But a careful look at the maths of these types of caps and limits shows that, once one takes into account the reality of their impact on middle-class families and on charitable donations, plausible limits raise only a fraction of the $1 trillion or more some have suggested.

Sperling and Furman use this breakdown to estimate potential revenues from eliminating deductions:

Measure: $25,000 itemized deduction cap. Increase in Revenue Capping Deductions for Incomes over $250,000 $800 billion Less: Phase-in Cap $650 billion Less: Charitable Deductions $450 billionTheir bottom line: to get to $1.56 trillion in revenue – as Obama outlines in his budget – marginal tax rates must go up on the highest income earners.

As Bill Clinton would say, “It’s arithmetic.”

 

Sperling and Furman included this table which explains their findings:

Itemized Deductions, Sperling and Furman

Photo: White House Blog

 

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