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Economist Mom

Even Paul Ryan wants to broaden the tax base

Ryan has a two-pronged proposal for tax reform. The first part would reduce the deficit, but the second part isn't so helpful.

By Guest blogger / May 31, 2011

US Rep. Paul Ryan (R-WI), chairman of the House Budget Committee, speaks at the 2011 Fiscal Summit on Solutions for America's future in Washington May 25, 2011. Ryan has outlined a two-part tax policy reform, but the two components cancel each other out, writes guest blogger Diane Lim Rogers.

Jason Reed / Reuters


On Wednesday I attended the Peter G. Peterson Foundation’s “Fiscal Summit”–what felt like the fiscal policy world’s version of the Oscars, complete with stars like Bill Clinton, Paul Ryan, and two-thirds of the cast formerly known as the “Gang of Six” (now five), and even video presentations of the deficit-reduction proposals from six think tanks that felt amazingly similar to the clips from the Best Picture nominees.

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President Clinton set the tone by encouraging an emphasis on the positive. Instead of painting doomsday scenarios about what would happen if we don’t get our act together and reduce the deficit, he said we ought to emphasize what we have to gain from fiscal responsibility–you know, just little things (just kidding) like a strong economy and a more secure future for our kids and grandkids.

And in terms of the variety of proposals from the variety of participating think tanks, both the Wall Street Journal’s David Wessel, and the Tax Policy Center’s Howard Gleckman point out that while there are deep philosophical differences between the most liberal (Economic Policy Institute) and most conservative (Heritage Foundation) groups in terms of their views on the optimal size of government, they still all came up with mathematically consistent proposals that would actually reduce the deficit. Heritage’s plan cuts spending the most in order to support a lower level of taxation (around the historical average of 18-19 percent of GDP), while EPI’s raises taxes the most in order to support a larger government.

Keeping on the positive, both David and Howard note the areas of agreement across the six proposals in terms of specific policy ideas, both awarding the “common ground” prize to… [drum roll please]… reducing tax expenditures! David presents the award this way:

[H]ere’s the headline: All six would curb tax income-tax breaks, loopholes, deductions and credits, a.k.a. “tax expenditures” or “spending through the tax code” because Congress uses them as alternatives to explicit spending. “Until recently,” the Peterson Foundation observes, “tax expenditures drew little scrutiny outside budget circles, but the Bowles-Simpson commission put [them] at the center of the public policy debate.”

This unanimity points to the likelihood that any tax increases to which Republicans acquiesce in a deficit deal will curb tax expenditures rather than raise tax rates, perhaps even touching (while not eliminating) tax breaks for mortgages and employer-financed health insurance.

And Howard, this way:

How did they get there? They all would reduce or eliminate many tax expenditures, although most would preserve subsidies for charitable giving and mortgage interest in one form or another.

And while many commentators paint Paul Ryan’s (House Republican) plan as devoid of any tax-side solutions, that’s false. Ryan’s deficit-reduction plan actually contains two tax plans which only when combined happen to add up to a zero-added-revenue plan: the first piece which broadens the tax base by reducing tax expenditures and hence raises revenue, and the second piece which reduces marginal tax rates and hence loses revenue.

So Paul Ryan proposes to reduce tax expenditures and raise revenue, too–just before he proposes to cut tax rates and lose the gained revenue.