A Republican House takeover looks likely and a Republican wave in the Senate seems more possible every day. By all accounts, the budgetary picture they will confront has serious problems that, in all probability, can’t be solved without policies that restore healthy economic growth. But the mathematical realities of current entitlement programs combined with the current lackluster economy also mean that it’s probably impossible to move towards a balanced budget with spending cuts alone. If Republicans want to show they’re serious about governing, they do need to at least give consideration to some polices designed to bring in more revenue. Five ideas may make some sense.
- Limit deductibility for state and local taxes: The total deductibility of many local and state taxes provides an effective subsidy to high-tax, high-spending local governments. (You can read more here.) Although total elimination is probably unfeasible, limiting the amount of local taxes that people can write off on their federal returns could bring in more revenue to the federal treasury while encouraging local governments to watch their spending.
- Cap the mortgage interest deduction: The mortgage interest deduction will never go away. But it’s difficult to see the public benefit of letting multi-millionaires write off the costs of new beach front mansions. Capping the deduction to rule out the very rich makes a lot of sense.
- Encourage employers and financial firms to make “taxed now” (Roth) savings plans the default option for employees: Right now, most workers can choose between taxed later (traditional) and “taxed now” (Roth) retirement savings vehicles. Economists and financial planners believe that the difference between the two washes for most people in retirement. The overwhelming majority of employees and employers, nonetheless, go with the time-tested “taxed later” options. Without eliminating any options for employees, simply requiring employers and financial firms to make the “taxed now” option the default for savers would very could bring in more revenue without making anyone worse off.
- Broaden the tax base: Presidents Bush and Obama both pursued policies that eliminated millions of Americans from the nation’s income tax rolls. Just about half of the population no longer pays any net income taxes. While raising taxes on the poor in the midst of a serious recession is heartless, at least some middle-income people who currently pay nothing at all should probably pay something to Uncle Sam.
- Impose new transportation user fees and raise those that exist: Almost all forms of transportation receive some subsidies out of general revenue. A Republican Congress could set a goal of asking all (or almost all) modes of transportation to pay for themselves. On roads, new toll collection technology makes it much easier to collect tolls without causing traffic jams. The government should embrace it as well as allowing states to toll interstate highways. On inland waterways, the tiny user fees (imposed by the Reagan administration) don’t even come close to covering the Army Corps’ of Engineers’ budget. In the air, individual tickets to dozens of smaller airports get subsidies up to a few hundred dollars each. Amtrak, although small potatoes in terms of the federal budget, simply wastes a lot of money. Some types of cross subsidies are inevitable and maybe even helpful but, overall, transportation should pretty much pay for itself.