Washington veterans from both parties want revenue increase in tax deal

The comments come as tax reform continues to be a priority for Washington officials on both sides of the aisle, even as most believe discussions and negotiations over a tax overhaul will last at least into the next Congress. 

But the statements from Summers and Feldstein also served to underscore the challenges policymakers face in revamping the tax code, with the idea of raising taxes strongly opposed by the vast majority of Republicans in Congress. 

Lawmakers and the White House also face the looming extension of the Bush-era tax rates, one of just several year-end issues currently facing Washington.

Summers, who also headed the National Economic Council under President Obama, said that even under what he termed optimistic projections, entitlement spending would have to be cut by 25 percent to stabilize the U.S. debt situation. 

Policymakers could also increase revenues by around a sixth, Summers added, or try some combination of the two approaches. 

“I don’t think it’s on this planet that we are in a decade going to reduce entitlement spending by anything like a quarter,” Summers said. “And therefore I think it is a near certainty that we are going to need a significant increase in revenues.”

Now a Harvard professor, Summers also tossed aside the idea that taxes could be cut and the lost revenue made up with spending cuts, saying that idea does “not represent claims that should be taken seriously in the public discourse.”

“The idea that we can be cutting taxes, which implies cutting entitlements by more than a quarter, I think, is frankly laughable,” he added. 

For his part, Feldstein said that eliminating tax preferences, which he called spending through the tax code, was a more positive way to raise revenues than increasing marginal rates.

“It is spending. It is the government saying, 'Well, we would like to encourage you to have a bigger house, a bigger mortgage, a bigger health insurance policy,' " said Feldstein, who was chairman of the Council of Economic Advisers under Reagan. “ 'We don’t write you a check for that. We let you exclude it or deduct it.' ”

Democrats and Republicans, Feldstein said, should be able to agree on limiting tax credits and deductions, with the former appreciating the increased revenue and the latter latching on to the decreased spending. 

“There shouldn’t be a division, a political division, between those who want to cut spending and those who want to raise revenue, if the way we get that revenue is by cutting tax expenditures,” said Feldstein, also now at Harvard. 

Summers likewise endorsed paring back tax preferences — though he added that, while that would make for a better tax code, it would not necessarily make for a simpler one.

The president’s fiscal commission also endorsed getting rid of tax preferences, as part of its broad deficit-reduction plan that included hundreds of billions of dollars in fresh revenue. 

But Republicans have steadfastly called for a revenue-neutral overhaul of the tax code, and said that any revenues that help eat into deficits should come from economic growth. 

The most recent House GOP budget called for collapsing the tax code into just two individual tax brackets, 10 percent and 25, and eliminating tax preferences to pay for that conversion. Democratic skeptics have charged that it would be hard to accomplish that goal without eliminating tax incentives used by the middle class. 

The vast majority of Republicans in Congress have also signed the Taxpayer Protection Pledge administered by Grover Norquist’s Americans for Tax Reform (ATR). That pledge states that any elimination of tax credits and deductions must be paired with a matching reduction in tax rates.

But Feldstein said Thursday that some Republicans have told him that, if presented with a pro-growth tax reform deal that raised revenue, they thought they could break the ATR pledge. 

“So I hope that once we get past the election, and people move from their hardened positions, both with respect to entitlements on the Democratic side and with respect to tax revenue on the Republican side, we will see an operational way of dealing with this problem,” Feldstein said.