A Possible Budget Compromise
My first preference, of course, would be to balance the budget entirely by cutting expenditures; Reason has had past discussions on how that could be done. The basic problem, in my view, is not the deficit, troubling although it might be, but the amount of resources consumed and misallocated by government.
But if there is going to be a compromise involving increasing taxes and decreasing expenditure, I think the right way to do it would be to make the "tax increases" take the form of reductions in tax expenditures, the elimination of features of the tax code whose only purpose is to subsidize one or another activity, and which distort economic decision making in the same way as other subsidies do. The obvious big one is the deduction for home mortgage interest, which subsidize home ownership relative to renting and thus played some role in creating the recent financial crisis—although I suspect that is politically untouchable.
The Obama administration, in theory, seems to agree with that approach; a recent news story claimed they were proposing to eliminate a large tax expenditure associated with an accounting rule. Unfortunately, the news story I saw on the proposal got the substance of the rule (permitting a choice between LIFO and FIFO accounting) completely wrong, making the difference look both larger and less justified than it is. As I explained in my comment to the story.
"He used the example of an oil company that bought oil when prices lower and sells it when the price is higher, declaring its profit based on the higher price. "We just don't think that's right," he said."
It isn't right--and it has nothing to do with the LIFO/FIFO issue. Either the spokesman is lying, he is incompetent, or your reporter got confused.
The difference has to do not with the price when sold but the prices at which two different batches of the same product, such as oil, are bought. A firm buys a thousand gallons of oil at $2/gallon, puts it in a tank. Six months later it buys another thousand at $3/gallon, adds it to the same tank. Six months after that it sells a thousand gallons out of the tank for $4/gallon.
Under LIFO ("Last In First Out") the oil sold is considered to be from the second batch bought, so cost is $3/gallon, revenue $4/gallon, profit $1/gallon. Under FIFO ("First In First Out") it is considered to be from the first batch, profit $4-$2=$2 gallon. Note that the ultimate effect is on the timing of the profit, not the amount, since the second thousand gallons will eventually get sold too, and the total expense for the whole two thousand is the same either way.
Under neither rule is the cost set to the sale price, which would make profit zero and is what your story seems to be claiming.
For what it's worth, I teach this as one bit of a course at the law school of Santa Clara University.