The House Budget Committee has released a report outlining an illustrative scenario in which a better-designed tax system lifts the growth rate, thus reducing the burden of federal expenditures over time:

HBC staff first constructed a “base-case” long-term GDP path using a standard assumption that nominal GDP grows by a fixed amount (about 4.3 percent per year) after the ten-year window. Tax reform was assumed to be enacted in 2013 with the economic benefits beginning to materialize in 2015. The alternative scenario was then obtained by applying the growth rule of thumb above to the base case, increasing GDP growth over the subsequent decade by 0.5 to 1.0 percentage point per year and then allowing GDP to ratchet back down to its trend rate in subsequent years.
Under this scenario, GDP growth is significantly higher than the base case over the medium and longer-term. As mentioned earlier, fundamental tax reform would likely boost the supply of labor and the degree of productivity in the economy (through, for instance, more investment and a higher capital stock). By 2030, the level of economic output is between 6 and 13 percent higher than the base case – within the general range mentioned by Auerbach and Hassett.
A larger and faster-growing economy leads to significantly higher revenue than the base case. This higher amount of revenue, when compared to the spending levels outlined in The Path to Prosperity, leads to a much-improved fiscal path. Assuming higher growth within the range cited above – percentage-point increases of 0.5 (lower-bound AGS), 0.75 (mid-point AGS), and 1.0 (upper-bound AGS) – the budget could achieve balance in the mid-to-early 2020s, with the upper-bound growth assumption producing budget balance within the ten-year budget window – much sooner than CBO’s estimated balance date of 2039.

Some will dispute the usefulness of the House Budget Committee’s exercise, and of course those who favor higher spending levels will presumably claim that it is federal public investment that will most reliably boost growth levels.

But the report is a useful reminder that the key issues in evaluating any proposed budget path include (a) its likely impact on the long-run growth trajectory, (b) its fiscal sustainability, and (c) its political sustainability. That is, will it contribute to or detract from output growth? Is it compatible with a tax and debt burden that taxpayers can sustain over time? And are the revisions to the social compact it entails going to spark a tissue rejection by the voting public or will they be embraced over time as superior alternatives to traditional models?

Like Yuval Levin, I am broadly sympathetic to Rep. Paul Ryan’s Path to Prosperity (PTP). But as Nick Gillespie reminds us, there are a number of other plans on the table. The plan that most closely aligns with my own views, AEI’s “Fiscal Solutions: A Balanced Plan for Fiscal Stability and Growth,” was released last spring as part of the Peterson Solutions Initiative, which called upon a number of groups, centrist, left-leaning, and right-leaning, to offer their own prescriptions. To be clear, the AEI plan was the work of Joseph Antos, Andrew Briggs, Alex Brill, and Alan Viard and it doesn’t necessarily reflect the views of all AEI scholars.

FSG bears a close resemblance to PTP, yet for obvious reasons (the scope of FSG isn’t limited by turf battles with various House committees, AEI scholars are far more insulated from political considerations than elected legislators, etc.) it offers more detail in outlining its vision for tax and entitlement reform. It also assumes that tax revenue will represent 19.5% of GDP in 2021 and 19.9% in 2035, somewhat higher levels than the PTP envisions. FSG’s Social Security and retirement savings reform, which we will discuss at greater length, and its tax reform are particular highlights, as is its Medicare reform proposal, which closely resembles PTP’s. My main disagreement with FSG is on Medicaid reform, where I fear the problems of jointness are more intractable than is commonly understood.