There are now two sides in the American tax debate: the Republican Party, which refuses to have a serious conversation about taxes, and the Democratic Party, which . . . refuses to have a serious conversation about taxes.
Let’s start here: We cannot fund anything close to the government’s commitments if we don’t raise taxes, or if we let only the Bush tax cuts for income over $250,000 expire. And that’s true even if we make deep cuts across all categories of federal spending.
Ezra Klein
Ezra Klein is the editor of Wonkblog and a columnist at the Washington Post, as well as a contributor to MSNBC and Bloomberg. His work focuses on domestic and economic policymaking, as well as the political system that’s constantly screwing it up. He really likes graphs, and is on Twitter, Google+ and Facebook. E-mail him here.
Deficits not going away.
Debt deal’s policy winners and losers
In the past year, there have been two major attempts to develop a bipartisan deficit-reduction package: one by the president’s fiscal commission, led by Alan Simpson and Erskine Bowles, and one by the Bipartisan Policy Center’s commission, led by Alice Rivlin and Pete Domenici. Rivlin, the first director of the Congressional Budget Office and one of the most respected fiscal hawks in Washington, had a particularly good vantage point on the two processes: She co-chaired one commission and served on the other. And she says Republicans and Democrats on both panels came to the same realization.
“We always started by asking how to slow the growth of entitlements, because that’s what’s driving the budget deficits,” she says. “But then we would find there’s nothing you can do that gets you much money in the near term. Then we would go after discretionary spending, and cap or freeze that. But after we did all that, we would realize we hadn’t closed the gap. This happened on both commissions. And that’s when everyone would realize you need more revenue and turn to improving the tax code.”
The proof is in the plans. The Simpson-Bowles commission called for almost $2 trillion in new revenue over the next 10 years. It got $800 billion of that from letting the Bush tax cuts for the rich expire, and the rest from clearing loopholes and spending programs out of the tax code. That plan won the support of Republican Sens. Tom Coburn (Okla.), Judd Gregg (N.H.) and Mike Crapo (Idaho) — three conservatives in good standing.
The Rivlin-Domenici commission’s plan would have raised even more money by adding a value-added tax on top of its tax reform proposal, and it won the backing of the panel’s Republicans, who included Bob Dole’s former chief of staff and Bill Frist’s former budget director.
The debt-ceiling deal simply proves the point. Let’s say the spending cuts go exactly as the Republicans hope: We cut $900 billion now and $1.5 trillion later. That’s more cuts than the White House says it would ever agree to, but ignore that for a moment. Now let’s say the tax side goes according to the White House’s plan: Most of the Bush tax cuts are extended, but the break for income of more than $250,000 a year expires. Are we done?
I asked Jim Horney of the Center on Budget and Policy Priorities to run the numbers. In 2021, that scenario would leave the debt above 75 percent of GDP — and growing. That’s well above the 60 percent of GDP most deficit hawks think we should shoot for, and it doesn’t leave us at all prepared to deal with costs related to the retiring baby boomers.
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