It’s Time Stop Squabbling about the Bush Tax Cuts

By :: November 22nd, 2011

As long as politicians keep squabbling about what to do about the Bush era tax cuts, we are doomed. There will be no serious deficit reduction. There will be no tax reform. There will be nothing but the same old partisan arguments. Don’t believe me? Just listen to the chatter coming out of the failed deficit super committee.  

That’s why it is time to reframe this debate. Rather than bickering endlessly about whether what they are doing is a tax cut or a tax increase compared to a law first passed a decade ago, lawmakers should start talking about what a fair and economically efficient tax code should look like. They ought to just decide how much tax revenue they need and then figure out how to raise it.   

Much as I’d love to take credit for this brilliant new insight, it is hardly original. The chairmen of the 2010 White House deficit reduction commission, Erskine Bowles and Alan Simpson, proposed rewriting the entire tax code from scratch and fixed a revenue target for the new law of 21 percent of Gross Domestic Product.  House Budget Committee Chairman Paul Ryan (R-WI) did much the same thing when he called for a bottom’s-up tax reform that produces 18 or 19 percent of GDP in federal taxes. 

Of course, pols will—and should-- argue loudly and often about what the right revenue target should be. But unlike the pushing and shoving over the 2001/2003/2010 law, that debate might actually lead somewhere. Besides, the public might be able to understand it, in contrast to Washington’s current incomprehensible incantations over current policy and current law baselines.

An editorial in this morning’s Washington Post, for example, contained the following description of one of the plans proposed in the super committee:  “Some Republicans began the process of accepting the need for new tax revenue, offering up a package that would total $300 billion more over the next decade than would be collected if the Bush tax cuts remained in effect.”

Does any normal human being have any idea what that means?

Without an agreed-upon revenue goal, tax reform is impossible. In 1986, reform happened only after President Reagan and both parties in Congress agreed the new tax law would raise neither more nor less revenue than the code it was replacing. Similarly, lawmakers will have to agree this time on how much they want to collect before they can decide how they want to collect it. Not a change relative to somebody’s favorite baseline, but how much money they want to raise.  

Will reframing the tax debate in this way break the logjam? I honestly don’t know. But I do know that endless wrangling about the Bush era tax cuts got us nowhere in 2010 when, after much angst, Congress and President Obama extended the law for another two years but resolved nothing. It got us nowhere during the hideous debt limit battle last summer, and it got us nowhere in the super committee that fell apart over the same old argument.  Remember the definition of insanity: Doing the same thing over and over again and expecting a different outcome.   

I get the politics of all this: The existing formulation allows Democrats to accuse Republicans of wrecking the economy to protect the tax cuts of their fat cat pals. And it lets Republicans claim Democrats are raising taxes on “job creators” and heartlessly throwing millions on the unemployment rolls. I get it. But I’m tired of it.  

 

 

4Comments

  1. Michael Bindner  ::  3:38 pm on November 22nd, 2011:

    First, the debate on the expiration of the Bush tax cuts is very relevant – because in the end, Obama can simply let them all expire and veto any attempts to extend them, provided the GOP is not holding anything else hostage during the Lame Duck Session next year. If the Tea Party members are handed their hats by the voters for attempting to take down the full faith and credit of the United States last summer, there will be no debt limit issue in January.

    Second, I agree with starting from scartch with tax reform. I also propose that more revenue sources be dedicated to certain categories of spending.

    Enact a receipt visible and national Value Added Taxes funding domestic military and civil regional discretionary spending.

    A regional VAT-like net business receipts tax funds non-OASI entitlement spending.

    A payroll tax funds OASI, with the employer contribution funded at an average with no limit on income. The tax may just fund the employee contribution with the employer contribution melded into the employer NBRT. Include offsets to the NBRT for alternative funding, like personal retirement accounts holding employer voting stock or comprehensive health care for retirees.

    A graduated surtax on all income and inheritance would fund debt service and repayment, transition costs to personal retirement accounts, overseas military spending and care for wounded veterans. Identifying this last tax with debt service makes clear what we already know implicitly, that cutting tax rates on top earners and incurring debt to do so does not burden every member of the next generation – just those who are most likely to pay high income tax rates. Once the 1% realize that they are borrowing only from their children, not all children, they will pay down the debt much faster.

    Emphasizing this point, rather than reciting the canard that the debt is owed on a per capita basis (which is false because we do not fund it with a head tax), is what is needed to move this debate. I am disappointed TPC has not yet made this point – or at least raised it for the sake of argument.

    Comparing debt liability on a state by state basis, comparing per capita debt liability with income tax based liability, also provides some interesting figures – particularly for states like Alabama and Mississippi, who would be creamed by a per capita debt accounting. Someone needs to tell Senator Sessions that he should like the income tax, unless he wants to put the citizens of his own state on the hook for more money than they owe with the alternative.

  2. AMTbuff  ::  10:10 pm on November 22nd, 2011:

    Does any normal human being have any idea what that means?

    Thanks for confirming that nobody here is normal!

    As the Republicans on the supercommittee said, it is appropriate to add tax revenues if and when the unsustainable benefit promises are dialed back. Otherwise it’s just wasting a resource that we will need later when the situation will be even worse.

  3. David Engage America  ::  11:26 am on November 23rd, 2011:

    If Congress were to reform the tax code according to the Bowles-Simpson plan then Republicans would be able to have their cake and Democrats could eat it too.

    The Bowles-Simpson plan called for eliminating tax expenditures and lowering marginal tax rates which would simplify the tax code, improve fairness, and spur economic growth. http://eng.am/noTDPF

    While Bowles-Simpson tax reform would make the Bush tax cuts permanent (which Republicans want) it would also raise a significant amount of revenue through the tax code to help pay down the deficit (which Democrats want).

    It boggles my mind how Congress could move so far away from a bipartisan plan that lowers rates, raises revenue, and reduces the deficit.

  4. jonathan  ::  6:13 pm on November 23rd, 2011:

    The Post quote is terrible journalism: the offer is to reduce the amount by which the tax cuts would increase the deficit over the same period. I said it this way because the law is scored given the law, meaning the tax cuts expire so the revenue is counted. This means the proposal increases the deficit by something like $1.3T – given the cost over the last decade – instead of increasing the deficit by $1.6T.

    I’d say it’s a symptom of the impossibility of the debate that something as basic as this can’t be phrased with any accuracy in a major newspaper. It’s like there’s a brain lock in place that keeps people from thinking clearly.