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 dollars 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.
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Ryan reduces federal spending by $6 trillion over 10 years — from the current 24 percent of GDP to the historical post-World War II average of about 20 percent.
Now, the historical average for revenues over the last 40 years is between 18 percent and 19 percent of GDP. As we return to that level with the economic recovery (we’re now at about 15 percent), Ryan would still leave us with an annual deficit in 2021 of 1.6 percent 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, for example, 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 percent, 14 percent, and 23 percent.
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 percent to 23 percent. 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 percent GDP gap that remains after 10 years, you can get there by slightly raising the final rates.
Ryan’s tax reform envisions three brackets with a top rate of 25 percent. There’s nothing sacred about that number. In principle, you could raise all the rates slightly with the top rate going to, say, 28 percent — the top rate that came out of Ronald Reagan’s 1986 tax reform. You’re still much lower than the current 35 percent. And yet that final boost could bring you closer to a fully balanced federal budget at roughly 20 percent of GDP.
I would actually start this process with a Balanced Budget Amendment to the US Constitution to ensure that we never get ourselves in this position again.
What's so tough to understand about the equality in a single flat tax? This would seem to solve any further debate on revenue source and allow our government to balance the budget with a one page bill.
Great idea, many excellent points. But it will neve happen. We went down this road before -about 20 years ago to be exact. President Bush41 and his advisor, the late Richard Darmam, wanted a deal on the budget. The negociations were long, and we were entering a short, mild rescession. And yes, there was a grand compromise at the end of the day. The President agreed on tax cuts first, and spending cuts second. He got the former (predictably), but none of the later.
When Bush signed the deal his career was effectively over. He never recovered.
In light of the "deal" Boehner and the President struck last Friday, why on earth do we think the 2012 budget deal will turn out any different than the deal Bush/Darmen struck with Mitchell and Foley? The names have changed, but not the result. Color me pessimistic.
Pass a balanced budget amendment. Abolish the income tax (repeal XVI). Establish a 10 percent national sales tax. Adjust tariffs based on national interests for remainder. Federal government focuses on defense, commerce and domestic tranquility; states on citizen’s health, education and welfare.
We can all appreciate and agree with the call of fellow NRO contributors for a "Constitutional" amendmendment mechanism et cetera...but the wretched political class as well as the "entitlement-class citizenry" cares nothing for, and knows nothing of the contents of the Constitution.
To the "bleeding-heart redistribute the wealth lib-progressive thiefs" our founding documents were written by old, white-European, racist-xenophobic, misogynistic, slave-loving, Judeo-Christian morons!!!
Dr. Krauthammer, your sage realistic counsel is consistently practical and insightful. While I do not disagree with anything you say...you seem to have forgotten the realism component this week.
As you well know, the Democrats think there is only a finite amount of money in the world, thus the more the rich have the less the poor do, so they ever seek to redistribute that wealth. They are so beholden to this false childlike concrete world view that they ignore proven revenue generation options.
Time and again this century when tax rates were lowered, total government tax revenues increased. This should make Democrats happy as more revenue equals more they can spend. Yet, as much as the Dems are dependent on handouts to guarantee votes, they are equally dependent on ideology, it’s their life source. That umbilical cord has yet to be severed. Thus punishing the wealthy for being wealthy incongruously has priority over seeking best revenue generation measures to fund their beloved dole dependency inducing programs.
So if you think the Dems will do anything other than rail against tax cuts, you are gravely mistaken.
But why do we need to fight about anything or comprimise on anything? Around May 15, the government will reach its legal debt limit. Then the budget will have to be balanced--not 20 years from now, but right now.
All of these plans to get the budget in control in the future are like an alcoholic saying he's going to quit drinking in five years and that step one of his plan is to have a drink.
The our elected representatives (of every party) will always have an incentive to rob future citizens to pay for goodies today. Any solution which allows them to continue to do that is no solution at all.
All a bnalnced budget means is that you MUST raise taxation in order to offset spending.
Which do you think the Democrats will do first, raise spending or taxes. Either way it is an offset mechanism not a solution. And I can guarantee as long as the liberals have a voice there will never be a surplus, they WILL raise spending to projected revnue levels.
I would rather see an amendment that places an absolute cap on spending as a percent of (pick your own reasonable basis) GDP, for instance.
Make the first year draconian if you wish (I do) and build from there.
The lynchpin of any worthwhile plan to reduce spending and get our fiscal house in order is this ... Republican leadership with 'stones' that are up to the challenge. Our current Republican leadership hasn't shown me 'pebbles' yet, much less 'stones'. Nothing's going to really get done until 2013, after we (true conservatives, not the old guard crop of 'spend just a little less than the socialists want to') take the Senate and the White House in 2012. We'll need more men of the stalwart character of Allen West in Congress before we can make the changes so necessary to the survival of the America we grew up with and love (the America of Reagan, not the shadowy monied-academic-community agitating America of Obama)
1. There is, in fact, only a finite amount of money in the world, if by "money" we mean things of real value. I do not mean a gold standard. I mean a comfortable place to live, good food to eat, social cohesion, safety, and so forth. But there is a potentially infinite amount of cash that can pursue the real money. Some of it causes inflation; some of it is genuinely linked to the economy and goes to the development of less worthwhile things. In that regard, I notice that many of the technological marvels developed by capitalism in recent decades has been frivolous or disgusting. For example, when I pass areas with farm workers, they still live in the same sociological poverty they did a generation ago; but now they all have cell phones.
2. There is no moral justification for a sales tax, because government does not enable sales. If this nation were invaded and run by some other nation under military occupation, would that stop sales? Of course not. It would affect our own military, and the career prospects of our elitist class until they figured out how to sell out. Let them pay for it.
3. Back to my #1: Why do we have so many elderly enduring for many years and drawing down the system, and so few of a replacement generation (not counting unrelated immigrants) to support them? Answer: Capitalism has diverted its cash from things that are worth real money, of enduring value, to worthless, transient things. You know what they are. I place blame squarely on capitalism. Not claiming that another system would do better; but I'm tired of hearing capitalism excuse its own failures.
Excellent post. The trouble is that liberals see the tax code not as an instrument for generating revenue but as an instrument of social policy. This is why, when asked, O said that even if raising tax rates would reduce government revenue he still felt that higher rates were the 'fair' things to do.
Dr K--another great column, however you attribute the same goals to everyone, and I think that's incorrect. The Democrats have no interest in fixing this problem. Having the government eat a greater and greater portion of the GDP only helps them.
They have no interest in arranging things so that we can keep more of our money, grow the economy and balance the budget. In their view, every dollar in the U.S. belongs to them--that is so say the State--and they are being saintly by letting us hold some of their money for a while.
They will not be satifsifed until they have it all, because only they are smart enough to know how to spend it--not us unwashed masses in flyover country.
Everything we do as Conservatives (not Republicans--as half of those clowns think the same thing) has to be based on this entering argument. These people have to be defeated--they cannot be negotiated with, because there is no compromise they will accept that doesn't end with "we get it ALL".
" Capitalism has diverted its cash from things that are worth real money, of enduring value, to worthless, transient things."
Capitalism did this? Or was it the people in a capitalist system. Would these people have made better decisions under another economic system? Are the poor choices of individuals necessarily a function of their economic system?
"You know what they are."
I am not sure I do. Could you elaborate?
"I place blame squarely on capitalism."
As opposed to the individuals who actually made the decisions?
While I've heard that argument before, I have my doubts whether it is "principled."
Here's the thing - generally speaking, the more money the average person has, the more he spends (in raw dollars, not percentages of total income) on things that would be subject to a sales tax.
If (say) the sales tax was 10%...
The poorer person who spends every dime of his $25,000 income on "sales tax" items will pay $2,500 in sales tax in a year.
And the rich guy who spends $500,000 of his $1,000,000 income on sales tax items will pay $50,000.
Each of them has paid 10% of what they spent ....
How, inherently, has the poor guy gotten "screwed"? Rich guy spent 20x more and paid 20x more ...
Now, if your point is "it's relatively harder for the poorer guy to make room in his life for that $2,500 to disappear," I'll concede that point. Which is why (generally speaking) people talking about a sales tax usually exclude food & such things from the tax.
THE MOST ATTRACTIVE THING about a sales tax (IMO) is it requires everyone to pay something.
Exempting whole classes of people from the "pain" of paying for all this government is one of the reasons our budget is so out of whack.
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