Tax Reform Can Be The Bridge To Compromise
By CHARLES KRAUTHAMMER Posted 06:26 PM ET
The most serious charge against Rep. Paul Ryan's budget is not the risible claim, made most prominently by President Obama in his George Washington University address, that it would "sacrifice the America we believe in."
The serious charge is that the Ryan plan fails by its own standards: Because it only cuts spending without raising taxes, it accumulates trillions of debt and doesn't balance the budget until the 2030s. If the debt is such a national emergency, they say, Ryan never really gets you there from here.
But the critics miss the point. You can't get there from here without Ryan's plan. It's the essential element. Of course Ryan is not going to propose tax increases. You don't need Republicans for that. That's what Democrats do. The president's speech was a prose poem to higher taxes — with every allusion to spending cuts guarded by a phalanx of impenetrable caveats.
Ryan reduces federal spending by $6 trillion over 10 years — from the current 24% of GDP to the historical post-World War II average of about 20%. Now, the historical average for revenues over the last 40 years is between 18% and 19% of GDP.
As we return to that level with the economic recovery (we're now at about 15%), Ryan would still leave us with an annual deficit in 2021 of 1.6% of GDP. The critics are right to focus on that gap. But it is bridgeable. And the mechanism for doing so is in plain sight: tax reform.
Real tax reform strips out exclusions, deductions, credits and the innumerable loopholes that have accumulated since the last tax reform of 1986. The Simpson-Bowles commission identifies $1.1 trillion of such revenue-robbers. In one scenario, it strips them all out and thus is able to lower rates for everyone to three brackets of 8%, 14% and 23%.
The commission does recommend that, on average, about $100 billion annually of that $1.1 trillion be kept by the Treasury (rather than going back to the taxpayer) to reduce the deficit. This is a slight deviation from revenue neutrality, but it still yields a major cut for the top rate from the current 35% to 23%.
The overall result is so reasonable and multiply beneficial that it rightly gained the concurrence of even the impeccably conservative (commission member) Sen. Tom Coburn.
That's the beauty of tax reform: It is both transparent and flexible. That flexibility and transparency can be applied to the Ryan plan. If you need a bit more deficit-reduction to bridge the 1.6% GDP gap that remains after 10 years, you can get there by slightly raising the final rates. |
