House Republicans and Senate Democrats split on tax reform

The House and Senate budget committees presented their fiscal 2014 budget proposals this week with sharply different story lines. For House Budget Committee Chairman Paul Ryan (R-Wis.), the point of the exercise was to chart a path to a balanced budget that could be sustained for decades. For Senate Budget Committee Chairwoman Patty Murray (D-Wash.), it was all about reviving the economy and spurring middle-class growth to bring the deficit under control.

Strip away the rhetoric, though, and you’ll find that both plans have the same basic elements -- you might even say they both lay the groundwork for the long-elusive grand bargain. Caps on discretionary spending, including defense? Check. Restraints on the growth of entitlements? Check. The elimination of some tax breaks? Check.

Where the twain may never meet, though, is on the tax front. Ryan wants to go medieval on tax breaks for the sake of simplifying the tax code and lowering tax rates dramatically. It’s a pretty straightforward concept: By making more income subject to taxation (by removing the exemptions, deductions, credits and preferences that shield various types of revenue from the Internal Revenue Service), you don’t have to take as high a percentage of it in order to generate the same amount for the government. This sort of simplification would produce winners (e.g., those who’ve been paying high rates with few tax breaks) and losers (e.g., those who’ve been claiming a slew of exemptions and deductions). But many economists agree that it would unleash more growth.

Murray’s proposal aims only at rich people’s tax breaks. Her goal isn’t to fix a hopelessly complex tax code; it’s to squeeze nearly $1 trillion more out of high-income Americans and corporations over the coming decade.

There’s an obvious middle ground: a complete overhaul of the tax code that reduces rates less than Ryan proposes, generating some additional revenue for the federal government as well as spurring the economy somewhat.

The problem for Murray’s side is that middle-class taxpayers are the ones who benefit most from the current system. (See this Tax Policy Center paper for more on this point.) That’s why Democrats in Congress have repeatedly tried to protect the tax breaks for households with incomes lower than $250,000. In other words, they want a complex system for the lower and middle classes, which makes it hard to have a simpler tax code for anyone.

There are ways to maintain a progressive in the tax code without preserving the thicket of breaks, which, after all, favor some taxpayers over others in near-irrational fashion. The tax code rewards people who have health insurance but not those who spend extra on good nutrition and exercise. It incentivizes people to hire accountants rather than learning how to file for themselves. It encourages people to stay deeply in debt on their homes rather than amassing equity. And so on and so on.

But hey, I do my own insanely complicated taxes, so maybe that’s just the frustration talking. What do you think about the dueling approaches to the tax code? Take our glibly unscientific poll, leave a comment, or do both!

ALSO:

Playing ball with AEG

The Medicare debate we need

Sunny times for solar power, except in LA

Follow Jon Healey on Twitter @jcahealey