by e21: Economic Policies for the 21st Century
e21: Economic Policies for the 21st Century
December 05, 2012
During the upcoming fiscal cliff negotiations, most of the attention is likely to be paid to two threshold questions: (1) whether or not Congress should agree to new tax revenue, period; and (2) what magnitude of spending cuts should be required for Congress to accept new revenue. Nearly as important, however, is how the revenue is to be collected. In this case, it is quite obvious that revenue should come from limitation on deductions rather than increases to marginal tax rates. However, there are key differences between the various approaches to limiting deductions. If revenue is necessary to avoid the fiscal cliff or achieve sizeable debt reduction, Congress should ensure that deductions are limited in the way that creates the fewest distortions.