Mixed News for Tax Reform

Reports today about the Republican Party's platform committee yields some good news and bad news for tax reform. First, the good news. The Wall Street Journal reports that the platform committee rejected an amendment that would call for no changes to be made to the mortgage interest deduction.

It is hard to imagine a sweeping tax reform plan without some changes to the mortgage interest deduction or other large tax expenditures such as the health insurance exclusion or state and local taxes deduction. Simply put, unwillingness to take on the sacred cows in the tax code will result in a minor reform at best.

So good for the platform committee. They refused to take off the table a major tax reform issue. Kevin Erickson, a Minnesota delegate, said it right: "As soon as we start talking about [the mortgage interest deduction], everyone has a pet one...Comprehensive tax reform that we’re talking about means the entire thing gets redone from the ground up."

But it's not all good news. At the same time the committee kept the mortgage interest deduction on the table, it decided to take the charitable deduction out of the discussion. 

We have written before about possible changes to both the mortgage interest deduction and the charitable deduction. These changes need not involve elimination; in fact, converting them into credits, as both Simpson-Bowles and Domenici-Rivlin did, would reverse their regressive nature and make them available to the estimated 70 percent of taxpayers who do not itemize. Reform could allow our tax code to become more efficient, become more progressive, and raise more revenue, but everything needs to be on the table for this to happen.