Archive for Budget
Can Tax and Social Security Heresy Lead to a Budget Deal?
Posted by: | CommentsIdeological heresy may not quite be breaking out all over Washington, but in the growing debate over the burgeoning debt, there are helpful hints of apostasy. And hope of a bipartisan consensus for responsible deficit reduction may lie atop those tiny waves of dissent.
The latest whiff of hopeful heterodoxy comes from three Republican senators– Saxby Chambliss of Georgia, Mike Crapo of Idaho, and Tom Coburn of Oklahoma. In quiet backroom negotiations and in a remarkable public exchange of letters with Grover Norquist of American for Tax Reform, the three lawmakers suggest that they might—might—support revenue-raising tax reform as part of a broader deficit reduction deal.
All of this is happening in code, and with classic Washington indirection. The three lawmakers—none of whom would ever be confused with a Rockefeller Republican—are the GOP half of a small bipartisan group of senators that is trying to develop a compromise deficit reduction plan. As members of President Obama’s deficit commission, Crapo and Coburn endorsed the proposal offered late last year by panel chairs Erskine Bowles and Alan Simpson. That plan included a call for a broad-based tax reform that would lower rates, eliminate most tax preferences, and raise about $800 billion in revenues from 2015 thr0ugh 2020.
When word spread that the three were working with Senate Democrats to design a bipartisan budget that would reduce spending, restructure Social Security, and reform and raise taxes, Norquist pounced. The three senators, he wrote, “were implicated as parties to a bipartisan budget deal containing a net tax increase.”
Norquist, the Tomás de Torquemada of tax policy, accepts no breach of his “Taxpayer Protection Pledge,” a vow to never raise taxes under any circumstances. According to the ATR website, the pledge has been signed by 237 House members and 41 senators, including Chambliss, Crapo and Coburn. Torquemada, you may recall, burned thousands of non-believers at the stake in the 15th century and was fondly known as “the hammer of heretics.”
Within hours, the three lawmakers responded with a very carefully written letter of their own. “Our pledge,” they wrote, “is to protect taxpayers, not special interests. To do so we must analyze every aspect of the federal budget, including the tax code.” On the other hand, they asserted their belief that “tax hikes will hinder, not promote, economic growth.” Finally, they included the usual disclaimer: The news story that reported their participation in budget talks provided only “rumored details.”
Before the day was out, Norquist gave the three his blessing. Their letter, he said, was “very encouraging.”
Yet, Chambliss, Crapo, and Coburn (who is said to have a good working relationship with Obama) never did rule out new revenues in a consensus budget deal. And Norquist seemed uncharacteristically conciliatory. Maybe it is the near-arrival of spring, but I find this encouraging.
Of course, no bipartisan agreement will be reached with GOP heterodoxy alone. The three Democrats in the Senate’s gang of six—Budget Committee Chairman Kent Conrad (D-ND), Virginia’s Mark Warner and, most importantly, #2 Senate Democrat Dick Durbin (D-IL) have gone out on their own limb by expressing a willingness to tackle Social Security. This issue generates as much heat on the left as tax hikes do on the right. Liberal bloggers have already dubbed them the “cat food caucus” for their trouble.
These six pols– who have yet to reach consensus even among themselves—have a long way to go before they can round up the 50 or 60 votes necessary to pass a serious budget in the Senate, to say nothing of getting it out of the House. And, as regular readers of TaxVox know, I have been extremely skeptical of a big budget deal before the next presidential election. Still, these bits of rebellion against party orthodoxy matter. They are small first steps. But they are steps.
Why Obama Punted on Deficit Reduction
Posted by: | CommentsThe latest Republican talking point is that President Obama is “punting” on his fiscal responsibilities by not proposing deep cuts in Medicare and Social Security. It is true that Obama’s 2012 budget was exceedingly timid when it came to deficit reduction. But Obama’s GOP critics ooze hypocrisy when they accuse him of fiscal irresponsibility.
This, after all, is the party that just last year, in its zeal to defeat “Obamacare,” demonized as “death panels” the president’s modest effort to constrain future cost growth in Medicare. And it is the party that continues to demand the 2001 and 2003 tax cuts be made permanent for all.
As usual, Republican message discipline is impressive: “We got a punt,” said House Budget Chairman Paul Ryan (R-WI) of the Obama fiscal plan. “When it comes to the real issues facing our country, he just punted,” said House Speaker John Boehner. “Obama Punts the Debt to the GOP” read a headline in the GOP mouthpiece The Weekly Standard. And so on.
The Republican death panel argument has taken on a curious double-meaning. Initially, it was their criticism of a provision in the 2010 health law that allowed Medicare to pay doctors for end-of-life discussions. Then, it morphed into the GOP’s objection to an independent board created to recommend Medicare cost savings to Congress.
The combined messages were a huge political winner for the GOP in 2010. In the non-presidential election year of 2006, voters 65 and older split evenly between Republican and Democratic congressional candidates. In off-year of 2010, GOP candidates won this group by 21 percentage points. The major reason according to pollsters: seniors’ fear of Medicare cuts under Obamacare, a worry aroused by the same GOP leaders who now criticize the president for not proposing Medicare cuts.
Obama is no fool. In the wake of 2010 election debacle, it is absurd to expect him or congressional Democrats to stick out their necks again on Medicare—to say nothing of Social Security. By choosing to trash the health law’s Medicare constraints for short-term political gain, Republicans dealt a serious blow to deficit reduction efforts.
How steep a hill must those who want to trim Medicare climb? According to a recent poll by the Kaiser Family Foundation, nearly half of those surveyed oppose any reductions to the program, which accounts for one-sixth of all government spending.
Obama may have a bit more room to maneuver on taxes, but not much. Polls suggest Americans support tax increases on high-earners to reduce the deficit. But the public opposes other new revenues. And last December, of course, Obama seemed unwilling to engage on the tax issue at all. The president, who vows to never raise taxes on individuals making less than $200,000 (or couples making less than $250,000) agreed with the GOP to extend the Bush-era tax cuts for all for two more years.
The GOP leadership, boxed in by its own “no new taxes” pledges and pressure from the tea party, shows no sign of budging on revenues. Obama has boxed himself in on taxes. And why would any but the most naive Democrat unilaterally propose unpopular Medicare cuts without so much as a hint of GOP movement on revenues?
Thus, Obama and the GOP do budget battle on the exceedingly narrow ground of non-security domestic spending—roughly 12 percent of government. In this environment, small-government, anti-regulatory Republicans get what they want: big cuts in highly visible (though relatively small) programs. And Hill Democrats get what they want—the opportunity to rip the GOP for allegedly increasing the suffering of those in need.
A small bipartisan group of senators is struggling mightily, with quiet White House backing, to find a way out of this maze. But given recent political history, it is hard to see how they’ll succeed.
Tax Reform: The Wheels Are Beginning to Turn
Posted by: | CommentsA recent column in the Christian Science Monitor (first appeared here):
America’s tax system is broken. It’s needlessly complex, economically harmful, and often unfair. It fails at its most basic task, raising enough money to pay government’s bills.
Because of Washington’s love affair with temporary tax cuts, it’s also increasingly unpredictable. Americans deserve a simpler, fairer, more pro-growth tax system.
It won’t be easy. Any reform creates losers as well as winners – and losers always let their representatives know how they feel. But Washington is giving hopeful signs that the journey toward tax reform – the first in a quarter century – may finally be under way.
In his State of the Union message, President Obama called on Congress to reform individual and corporate taxes. He reiterated the offer at a press conference Feb.15. Democrats and Republicans have been holding hearings and drafting legislation. The president’s fiscal commission and the Domenici-Rivlin debt-reduction task force (on which I served) have proposed serious reforms, taking hatchets to the trillion-dollar thicket of tax preferences that complicate the code and distort economic activity.
Fixing the corporate tax code looks to be the easier task. Federal and state levies average more than 39 percent, the second highest in the world; we’ll take the top spot in April when Japan slashes its rate. Add in rising concern about America’s international competitiveness and slow economic recovery, and you have a recipe for a bipartisan push to cut corporate tax rates.
Given America’s budget woes, however, we can’t afford to reduce future revenues. Unless Washington demonstrates remarkable spending discipline, we will need all our existing revenues, and more, to cover the costs of an aging population and rising health-care costs.
That’s where real reform comes in. Along with high corporate tax rates, we also have very generous tax breaks, leaving much corporate income untaxed or facing only low effective rates. Far better would be a system with fewer tax breaks and lower rates across the board.
Such reform would reduce distortions and allow economic fundamentals, not taxes, to guide business decisions. As Mr. Obama put it: “Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate … without adding to our deficit.”
Congress should pursue the same strategy with an even bigger challenge, the personal income tax. Dozens of exemptions, exclusions, deductions, and credits complicate the code and make Swiss cheese of our tax base. These preferences mean that trillions of dollars of income go untaxed. As a result, Congress must impose higher rates on the income that does get taxed, weakening economic growth and treating unfairly tax-payers who don’t milk every preference.
Policymakers should cut those tax preferences, use some of the resulting revenue to cut tax rates, and use the remainder for deficit reduction. A good starting point would be the fiscal commission’s proposal to eliminate many tax preferences and use the savings to deep-six the hated alternative minimum tax, cut tax rates across the board, and boost revenues by $80 billion a year. That plan would also make taxes more progressive while retaining slimmed-down deductions for mortgage interest, retirement savings, and charitable giving.
Tax reform will be a journey. The landmark reform in 1986 capped several years of effort. The same is likely to be true this time. If our leaders want to enact the landmark tax reform of 2013, they need to start sharpening their hatchets now.