Closing tax loopholes

In the debt ceiling debate going on i Washington the question has come up if the closing of tax loopholes is a tax increase or not. Since Republicans refuse to raise taxes, instead closing tax loopholes is seen as a potential compromise. I would argue that the question to be asked shouldn't be if the closing of loopholes is a tax increase or not, rather we should ask if the effects on the economy of closing tax loopholes is the same as the effects of raising taxes. Since it is the economy we should care about and not semantics.

A tax increase has a negative effect on the economy largely because it leaves less money in peoples pockets leading to lower consumption, which is the driving factor of economic growth. The effect of closing tax loopholes is that people and companies will pay more taxes, so it would have the same negative effects as a tax increase.

Progressive taxes, making the rich pay a higher percentage of their earnings, has the effect of making hard work, education and risk taking pay less, thereby discouraging it and negatively effecting the economy. The American tax system is highly progressive in theory but not in practice since there is a multitude of tax loopholes keeping taxes on high earners low. Economist Milton Friedman has argues that if it wasn't for all these loopholes Americas progressive tax system would have destroyed the American economy. So the closing of tax loopholes would mean a higher tax burden on wealthy Americans, which would discourage the kind of activity that is beneficial to the economy, the same way a new tax on the well off would.

Higher taxes might well be necessary to keep down the American deficit, but we should not pretend that the negative effects of closing tax loopholes is not the same as the negative effects of a tax increase. They are.