Put limits on income tax deductions, Senate Republican Leader Mitch McConnell urged Senate colleagues Thursday in a floor speech--but don't raise income tax rates.
“In the middle of a jobs crisis, that’s the last thing we want to do. Shouldn’t we all agree on that?" he asked. “The negative effect that raising rates has on labor is so widely acknowledged that the Joint Committee on Taxation actually has models that incorporate the effects of doing it. They also know that higher rates increase the incentive to shelter income from taxation. When rates are higher the people paying them try even harder to keep government from taking what they earn."
McConnell, R-Ky, argued that "raising rates means less labor, less investment, and more incentive for the wealthy to waste money in an attempt to shelter what they’ve earned. We can quibble about the magnitude of these effects, but everyone agrees they exist. The problem is particularly acute for those thinking about taking a second job in a household, which in many cases unfairly targets married women looking to supplement the family income, or someone considering a promotion or starting a new venture.
So he had another idea.
“Instead of raising rates, Republicans have proposed capping deductions through tax reform instead. If the only way to get Democrats to agree to pro-growth tax reform and meaningful entitlement reform is through more revenue, a smarter way to do it is by capping deductions," he said. "Capping deductions, or tax expenditures as some call them, is a far less painful, more economically sound way of closing deficits. And the Congressional Budget Office agrees."