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Good news re: Republicans and revenues?

Some Republicans may be more open to including revenue increases in a deficit-cutting budget deal.  The latest evidence comes from Sunday’s comments by Sen. Lindsey Graham (R-SC) on NBC’s “Meet the Press,” where he said, “No one on the Republican side is going to vote to raise taxes, but I think many of us would look at flattening the tax code, do away with deductions and exemptions and take that revenue to help pay off the debt.”

Graham’s comments did not arise from nowhere.  Most Senate Republicans voted last week to end tax subsidies for ethanol production, which cost the federal government about $6 billion a year.  Also, Sen. Lamar Alexander (R-TN) is reportedly working on a plan to scale back tax subsidies for oil and gas companies.

What Graham means, and what some other Republicans have echoed, is that they are open to reducing some of the “tax expenditures” in the federal budget.  Tax expenditures are the credits, deductions, and other write-offs that individuals and corporations can claim for certain activities, like producing ethanol (as noted above) or paying interest on a home mortgage. They are a big part of the tax code, draining more than $1 trillion a year in revenues that the federal government would otherwise collect.

Cutting tax expenditures, which tax experts often call “broadening the tax base,” could prove important.  Raising revenues in this way would soften the need for dramatic cuts in vital budget programs.  Were more Republicans willing to follow this path, it could pave the way for a deficit-cutting plan that would be more balanced and that could well achieve more total budget savings than otherwise.

But policymakers should apply most or all of the revenues raised by cutting tax expenditures to deficit cutting.  If, instead, they mostly use those revenues to lower tax rates, that’s almost worse than nothing.  Not only won’t it cut the deficit much, it will make future deficit-cutting harder by taking some of the “low-hanging fruit” on the tax side – that is, particularly egregious tax breaks – off the table.