A bipartisan and reality-based way to cut tax rates AND reduce the deficit. Really.
As first reported by , the President鈥檚 fiscal commission has just released a proposal endorsed by the commission鈥檚 co-chairs, Democrat Erskine Bowles and Republican Alan Simpson. The New York Times provides a link to the .
The plan achieves the commission鈥檚 鈥渕edium-term鈥� goal of getting deficits under 3 percent of GDP by 2015 (the co-chairs actually hit 2.2 percent) with a mix of spending cuts and revenue increases, eventually converging the spending and revenue lines at around 21-22 percent of GDP by 2025-30. The plan is heavier on spending cuts than tax increases, at a ratio of about 3-to-1 according to the Times article, although that calculation no doubt depends on the starting reference point, or 鈥渂aseline.鈥� Note that relative to , revenues under the co-chairs鈥� plan are actually lower, not higher. (Under current law, revenues are 20.1 and 21.0 percent of GDP in 2015 and 2020, respectively, from table 1-2 on page 4 of the CBO report. Under the co-chairs鈥� plan, they are 19.3 and 20.5 percent; see page 13 of the presentation slides.) Relative to , however, revenues do come up, although by only less than 1 percent of GDP by 2020.
More interesting is the fact that the co-chairs have come up with a way to raise revenue/GDP to something above the President鈥檚 proposals and something above the 鈥渃harmed鈥� 18 to 19 percent of GDP (40-year historical average) that Republicans like to insist on, while also managing to lower marginal tax rates鈥揳nd that they accomplish this without any hocus pocus evoking the magical Laffer Curve. How do they do this? By broadening and leveling out the tax base, filling in the holes in the tax base that are known as 鈥渢ax expenditures.鈥�
Because tax expenditures create inefficiencies in the tax system and require increases in marginal tax rates to make up for the lost revenue, reducing or eliminating them represents one of the most promising avenues for bipartisan compromise in any proposals for deficit reduction. Raising revenues in these base-broadening ways would allow both deficit reduction and marginal tax rate reduction (both of which Republicans claim to want) and would allow both deficit reduction and progressive tax increases (both of which Democrats claim to want), since most tax expenditures disproportionately benefit higher-income households.
I鈥檒l have a little more on bipartisan tax policy ideas later this week (including my 100th-or-so installment of the short-term issue of what to do about the Bush tax cuts), as well as in the weeks and months to come.
And as an aside, co-chair Simpson has switched animal references; :
鈥淲e have harpooned every whale in the ocean and some of the minnows,鈥� Simpson said. 鈥淣o one has done this before.鈥�
------------------------------
海角大神 has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
