Millionaire's tax breaks - Who's right

As we come down to the wire on the issue of raising the debt ceiling, both Republicans and Democrats are playing childish political theater in public. One only hopes they are being more adult in their private meetings.

Republicans insist on no new taxes (and, in fact, repealing a tax break is a tax increase, whatever the Democrats say). President Obama insists new taxes are needed, and keeps harping on a few high-visibility tax breaks for the wealthy to make his point. So who is right here?

Well, if President Obama managed to repeal the few high-visibility tax breaks he keeps talking about it would make almost no discernible difference to the deficit. For example, the GAO calculates that eliminating the corporate jet tax break would reduce the deficit by about $3 billion over the next 10 years - certainly worth doing, but hardly a drop in the bucket compared to the estimated $50 TRILLION increase in the federal debt over that same period under the current budget.

Certainly it would be worth overhauling the tax code to eliminate all special interest tax breaks. As I have argued in my free market series, government interference in price signals - whether through subsidies (like tax breaks) or price controls - always makes things worse. But in fact it would take HUGE tax increases (in the range 30-40%) on everyone to make a dent in the deficit under the current budget, so in fact reducing spending has to account for most of the savings, unpalatable as that will be to liberals. And in fact most of the reduced spending has to come from entitlement programs, because that is where most of the money is going.

So, like it or not, a realistic solution to our deficit problem has to come mostly from cutting spending - raising taxes isn't going to help much.