The public debate about “tax loopholes” is muddled at least in part because “loopholes” and “tax expenditures” have become intertwined. Both are peculiar terms.

“Loopholes” have a history. Some accounts report the term as originally referring to the narrow slits (larger on the inside and smaller on the outside) cut into castles. They made it possible for defenders to peer out and watch with relative safety, and when necessary, fire arrows or other projectiles to protect the castle. Some loopholes in castles were slightly larger and could be used as an escape when necessary. Other explanations of the origin of the term point to alternative Dutch words meaning “to run” and “to watch”.  Others refer to an English term, suggesting “to leap.” A number of references cite poet Andrew Marvell (1621-1678) using loopholes to communicate the ability to evade or squeeze through.  Today, loophole is a symbolically rich term that is intended to mean that something unseemly is taking place through such evasion and squeezing.

Are tax expenditures an entirely different matter? The Congressional Budget Act of 1974 (Public Law 93-344) defines tax expenditures as, “…revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of liability.” That is, in plain English: tax expenditures are lost tax revenues caused by special exceptions to tax laws. By law, a list of “tax expenditures” must be included in the President’s budget in a section titled “Analytical Perspectives,” prepared by the Office of Management and Budget. The list for 2012 includes 173 “tax expenditures (p241 – 251),” which total over one trillion dollars for the fiscal year beginning October 1, 2011.  As objective as this may sound, the list and estimates of “cost” is actually quite subjective, because analysts posit the starting point of the tax baseline.

The categories for the 173 “tax expenditures” in the 2012 budget proposal are: national defense, international affairs, general science, space and technology, energy, natural resources and environment, agriculture, commerce and housing, transportation, community and regional development, education, training, employment and social services, health, income security, social security, veterans benefits and services, general purpose fiscal assistance and interest. In an addition, an addendum is included, aid to state and local governments. At some point, a group of legislators considered each one of these ideas useful to achieve a specific policy objective.

Some of these are obvious. The deferral of interest on U. S. savings bonds promotes savings and helps fund the government. The deductibility of mortgage interest on owner-occupied homes facilitates home ownership and encourages home construction, a large segment of the U. S. economy. The deductibility of student-loan interest helps make higher education more accessible.

Other “tax expenditures” are more controversial, such as the deferral of income from controlled foreign corporations under the normal tax method. Law makers gave multinational corporations tax advantages in an attempt to prevent them from relocating outside of the United States.

Reforming such tax laws is difficult, because it would have economic consequences. Each expenditure and loophole must be addressed carefully so as not to produce unwanted economic consequences. Eliminating “tax expenditures” is policy making. Eliminating “loopholes” is a means of administratively cleaning up tax law. Each “tax expenditure” and “loophole” needs to be considered closely. Tax reform, like the devil is, in the details.

Last month, I speculated that the supercommittee had the potential to help drag our legislature into a more authentic form of bipartisanship, a bipartisanship based on principled mutual compromise in the tradition of Henry Clay. I expressed my belief that the makeup of the committee would determine its ability to affect change. In that respect, the prospect of the committee changing the status quo now seems bleak. There is great opportunity but the membership of the committee suggested that the opportunity will be missed.

The Committee on Deficit Reduction is nominally a “joint select committee.” Emphasis should be given to the “joint” nature. Select committees generally suggest, but don’t legislate.  In the present supercommittee, I see the spirit of the conference committees that resolve contentions between Senate and House bills. “Going to conference” offers possibilities of compromise that would not have previously existed for the conferees in their respective chambers or standing committees. Conference rules state that “the conferees are given free reign to resolve their differences without formal instructions from their bodies.” Senate scholar Walter Oleszek quoted an anonymous Senate leader opining, “Conferences are marvelous. They’re mystical. They’re alchemy. It’s absolutely dazzling what you can do.”

In the Obama budget talks, posturing was encouraged by heightened visibility. Separate branches of government competed for authority. With the supercommittee, we move to what Erving Goffman called the “backstage.” The individual actors have more agency to shape the outcome than the participants of last year’s deal. That is why I believe an overview of the members involved will not only be informative, but help us understand the debate’s nature. I have my partisan interests. Nonetheless, while I think the Democrats have some problems, I think the real problem lies with the Republicans.

The Democrats: The House delegation is perhaps too easy to dismiss as Pelosi loyalists – Van Hollen and Clyburn have been her top lieutenants. On the Senate side, Patty Murray is a progressive who could create real dialogue. However, my intuition tells me she is acting primarily as a representative of party leadership. There is nothing wrong with this (and I afford Senator Kyl the same leniency) but I am concerned it may constrain her in a way that, say, Senator Leahy would not have been. Senator Baucus suffers from allegations by Alan Simpson that he was all but absent in the Simpson-Bowles commission work. John Kerry, in contrast, was praised for his commitment to that report, and the “Senate Man” image that hurt his presidential bid may help him maneuver the wheeling-and-dealing of a private conference.

The Republicans: The choice of their delegates reflects a complete disinterest in any compromise. The committee is stacked with the “true believers” Jeffrey Goldfarb describes as a threat to the delicate relationship between truth and politics. Equally disturbing is how the choices seem to reflect ignorance of Americans’ struggles. “Out of touch” is a campaign cliché, but POLITICO’s David Rogers provided an interesting piece of journalism highlighting that the committee Republicans are all white men with “considerable wealth.” McConnell and Boehner are savvy politicians — they know that their selections convey a message beyond the fitness of the members to solve the problems in front of the committee. I’m incredulous that a single, competent woman or minority was not available to serve (Olympia Snowe? Susan Collins? Marco Rubio, even?).

So who are the GOP’s voices at the table?

Senator John Kyl of Arizona. Mr. Kyl was part of the Biden working group, but I would caution seeing this as a sign of bipartisan commitment. Mr. Kyl has followed up last fall’s inflexible opposition to the START treaty (despite full-throated support from the national security community and respected Republican experts including Dick Lugar)with the statement “I’m off the committee,” if defense cuts are considered. This after only one meeting.

Senator Pat Toomey of Pennsylvania is the only member on the committee who voted against the debt ceiling compromise, and I suspect that is the primary reason he was selected. Someone like Jim DeMint has more experience and more cache with the Tea Party.

Senator Rob Portman of Ohio was elected in the Tea Party tidal-wave, but he is a pragmatic, career politician at heart. He served as budget director for George W. Bush. Portman describes himself as a “hawk on tax reform.” I believe that this is the proper lens through which to view Boehner’s unusual choice of appointing two Michigan representatives: Reps. Camp and Upton. Upton chairs the powerful Committee on Ways and Means through which any tax legislation would pass. Camp chairs the Committee on Energy and Commerce, which, by virtue of its broad jurisdiction, would be affected by practically any tax code changes.

Tax reform is popular with both parties. If the supercommittee were to hone in on  tax code reform, it may appear that acrimony could be avoided while addressing the deficit. I am not convinced Boehner’s motives are so pure. Boehner’s view of tax reform is essentialy of the revenue-neutral school of thought. A focus on revenue-neutral reform would allow a “front stage” appearance of mutual concession, while the “back stage” would hardly be worthy of the name in Goffman’s sense, opening the door to of a series of Democratic concessions to further tax cuts. From a practical standpoint it would also help the committee to avoid making the hard decisions it was convened to make.

Co-chair Jeb Hensarling is the House’s most fervent crusader against spending, and further complicates the tax reform issue. He could be a powerful advocate to push the tax reform angle. It was Hensarling who rallied his caucus to vote down the September 2008 financial bill, an action that sent the market into such a panic that the Bush bailout was passed on the second go with the Senate at the wheel. But Hensarling could also put the brakes on tax reform. Deficit hawks are not monolithic in their support of revenue-neutral reform and if Hensarling senses corporate taxes could be increased as a result, any movement on that issue would likely be stalled.

Considering the restrictions of the Democratic conferees and the aversion to concession of the Republican conferees, it seems to me that  any deal will necessarily have Senators Kerry and Portman as the designated deal-brokers. Their experience and relative pragmatism, respectively, will allow the committee to come to an agreement. But I fear it will be a modest agreement – a deal, not a compromise .

A great opportunity likely will be lost. Congress was given an opportunity to work outside of the normal constraints of legislation. There was a possibility for “alchemy.” Instead, I fear, there will be a deal almost indistinguishable from those the Senate has historically passed with regularity. We may save ourselves from an immediate crisis, but at the cost of continuing on our current path of disruptive partisanship avoiding the serious problems we face.