Think back to Obama's FIRST budget proposal for 2012. The one that cut "with a scalpel" not an ax. One of the most UNserious things EVER to come from a President because even if ALL of his assumptions came to pass it literally cut only a few billion.
Now we have Paul Ryan's proposal for which he and the Republicans are being vilified right and left by the Dems and their media familiars.
Ryan's plan seeks to cut spending by $6 trillion over the next ten years. He wants to take it from 24% of GDP ( a peacetime RECORD ! ) to about 20%. Ryans's number is about the average post W.W. II level of Federal spending.
The historical average for Federal revenue is 18 to 19 % of GDP. We are currently at 15%.
Critics of Ryan's plan, like the lovely and talented Paul Krugman ( nobody uses half the available facts better ) point out ( with some merit actually ) that Ryan's plan does NOT eliminate the deficit while starving children and pulling the plug on grandparents.
The solution is ridiculously obvious. Eliminate the exclusions, deductions, credits and loopholes that have accumulated since the LAST tax reform in 1986. Obama's own Simpson -Bowles Commission ( that Obama ignored BEFORE he threw them under the bus ) identified $1.1 TRILLION of revenue robbers. Strip them all out and we can have 3 tax brackets of 8% , 14% and 23 %. And it is NOT revenue neutral. The Treasury gets over $100 billion in MORE revenue per year at the rates I just cited. There are plenty of Conservative Republicans, including Commission member Tom Coburn, willing to go along with such a proposal. Ryan's proposal envisions a top rate of 25%. if you want MORE deficit reduction FASTER, we could go to a top rate of 28%. That's the one we had in 1986 after Reagan's tax reform when HIS deficits really started to decline both in real terms and as a percentage of GDP. Want even MORE deficit reduction ? Go "Canadian" and eliminate the home mortgage interest deduction ? That is also a lower RATE than the current 35% . One reason to accept tax revenues at MORE than the historical average of 18-19% is that we are now an older society and that modern medicine costs more now than it did then. Want even more ? Are you willing to accept mass apoplexy on K Street and among the "super-rich" ? Not to mention in half the statehouses and city halls in this country ? Eliminate the Federal tax exemption on state and local bonds.
This is all assuming rather anemic economic growth of 2.5 %. If we see what we have seen as a result of past tax reforms, GDP will be growing faster than debt. Every % point of higher economic growth means AT LEAST another $100 billion in tax revenue per year and LESS spending on things like Food Stamps and Unemployment Insurance.
The rest of the world , which is getting really scared about a possible U.S. default , would not demand higher interest rates on our debt thus saving even more money in the Federal budget.
None of this happens without spending cuts. Ryan and the Republicans are right to insist on seeing serious substantial cuts FIRST and THEN go through the politically theatrical exercise of having their arms twisted to raise revenues. There are two recent examples ( Reagan and Bush The Smarter ) where a Republican trusted the Dems to come through with promised spending cuts in return for tax increases. The promised spending cuts NEVER happened. This time Ryan et. al are being a LOT smarter. They don't need to propose tax increases. That is the job of Obama and the Dems.
Another point from history that must be understood. In the last real tax reform, Congress gave up a LOT of power. Eliminating all those deductions, credits, exemptions and loopholes caused mass hysteria on K Street, to put it mildly. In 1986 the Dems regained control of the Senate. Bush the Smarter and Clinton's tax increases created a concurrent demand for NEW credits , deductions, exemptions and loopholes. The last 20 years or so have seen BOTH parties sell their souls to accomodate this group or that interest. THAT is probably the biggest reason we do not have a flat tax. With a deduction and loophole free Tax Code, Congress loses a LOT of power.
Everyone knows that economic growth alone does not solve the debt and deficit mess. Only Obama seriously thinks there actually enough "rich" people making enough money that can really be taxed and COLLECTED to make a real dent in the debt. Spending cuts alone won't do it. Not unless the D.C. dimwits get serious and adopt the "Stoner Plan" i.e. Eliminate the Depts. of Agriculture, Energy, Commerce and Education ( and NPR, PBS not to mention the NEA ) and means test ALL entitlements INCLUDING Social Security . So obviously we need to do all three.



Reply With Quote

Bookmarks