–Ex Tys’s Summers, Ex CEA Chief Feldstein Focus On Tax Expenditures
–Summers: US Needs Both Deficit Reduction and Growth Strategy
–Feldstein: Urges Overall Cap On Tax Expenditures
–Budget Group: Tax Reform Should Be Part of ‘Comprehensive Fiscal Plan’

By John Shaw

WASHINGTON (MNI) – Former Treasury Secretary Larry Summers and
former Chairman of the Council of Economic Advisers Martin Feldstein
told a budget conference Thursday that tax reform, with a major emphasis
on limiting tax expenditures, must be a critical part of the nation’s
fiscal consolidation strategy.

Summers and Feldstein addressed the “Strengthening of America”
initiative, which is being organized by a number of think tanks to focus
attention on the U.S.’s serious fiscal problems.

Summers and Feldstein agreed that tackling the nation’s large
budget deficits will require a mix of entitlement reforms and additional
revenues, adding that the increase in revenues should occur in the
context of limiting the more than $1 trillion in annual tax
expenditures.

Tax expenditures are the various tax deductions, exemptions and
loopholes that permeate the U.S. tax code.

Curtailing tax expenditures, Summers and Feldstein argued, would
allow for a reduction in marginal tax rates which would in turn
stimulate economic growth.

Feldstein argued that limiting tax expenditures would have the
effect of “changing incentives that would lead to growth.”

He added that limiting tax expenditures “will have a direct effect
on growth.”

Summers said that it’s necessary for the U.S. policymakers to focus
on reducing long-term deficits and spurring growth now. “A fiscal
sustainability strategy has to be complemented with a growth strategy,”
Summers said.

Summers said an effort to cut back special tax breaks and reduce
marginal tax rates would be “the most pro-growth strategy possible.”

In response to a question, Summers said it’s impossible to know how
long the financial markets will wait for the U.S. to develop a credible
long-term deficit plan.

“I don’t think anybody can know,” he said. “Every day we delay is a
day we increase the risk,” he said.

Feldstein agreed that it’s hard to anticipate market reactions to
U.S. fiscal policy.

“We don’t know how long the financial markets will be tolerant of
our enormous deficits and debt,” Feldstein said.

Several weeks ago, former Treasury Secretaries, James Baker and
Robert Rubin addressed the same conference and said the U.S. is lurching
toward an almost certain economic crisis unless it adopts a plan to
control long-term budget deficits.

Both Baker and Rubin argued that the impending fiscal cliff
deadlines provide a huge opportunity for policymakers to craft a
comprehensive deficit reduction agreement.

In another session of this budget forum, Former Secretary of
Defense Robert Gates and the former chairman of the Joint Chiefs of
Staff, Admiral Mike Mullen, said controlling the budget deficit is a
critical national security challenge.

Both Gates and Mullen were sharply critical of the polarized and
poisonous political climate that has infected American life and made it
difficult to negotiate needed compromises.

Gates said that he hopes that “whatever adults remain in the two
political parties” will work together after the November elections to
craft a deficit reduction agreement that solves “the most difficult and
divisive problems facing this country” and averts scheduled
across-the-board spending cuts.

Former Senator Alan Simpson and former White House Chief of Staff
Erskine Bowles, the co-chairmen of President Obama’s 2010 fiscal
commission, also addressed the forum and said that action is needed soon
to tackle the nation’s fiscal challenges.

The U.S., Bowles said, is facing “the most predictable economic
crisis in history and also the most avoidable.”

“These deficits are like a cancer. They are going to destroy the
country from within,” he said.

Both Simpson and Bowles touted the deficit reduction plan they
drafted in 2010 that achieves more than $4 trillion in deficit reduction
over a decade, with a blend of spending cuts and tax increases.

“Four trillion is the minimum amount we need to reduce the deficit
to stabilize our debt,” Bowles said.

Former Senate Budget Committee Chairman Pete Domenici and former
White House budget director Alice Rivlin have also addressed the
conference and pleaded for action to tackle the deficit.

“The key is bipartisanship and compromise,” Rivlin said, adding
that both spending cuts and additional revenues must be part of the
plan.

“Politicians are stuck in this groove that it’s either one way or
another,” she said.

In a related matter, The Committee For a Responsible Federal
Budget, a budget watchdog group, has issued a report this week calling
for a major effort to overhaul the corporate tax code as part of a
“comprehensive fiscal plan to intelligently put the debt on a clear
downward path as a share of the economy.”

The report reviews the various corporate tax reform proposals that
have been introduced in recent years, adding that they provide the basis
for a productive negotiation and solution.

“Done right, corporate tax reform can help to accelerate economic
growth, improve tax compliance, reduce unnecessary tax planning costs,
and increase simplicity and fairness,” the report says.

** MNI Washington Bureau: (202) 371-2121 **

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