March 20, 2012
House Budget Committee Chairman Paul Ryan this morning rolled out a Republican spending blue print and tax overhaul measure that has virtually no chance of being enacted this year but that sharply focuses election year differences between the Republicans and Democrats.
The plan includes deeper domestic spending cuts than called for in last summer’s deficit reduction deal that was negotiated by the White House and congressional leaders and a reprise of Ryan’s call last year for major changes in Medicare and other entitlement spending. But the surprise was a comprehensive tax overhaul proposal that would sharply cut tax breaks and provide for just two individual brackets of 10 percent and 25 percent.
Ryan's plan, which would end the Alternative Minimum Tax, was originally conceived as a way to insure that wealthy Americans couldn't escape paying some tax but that over time has ensnared more and more middle income taxpayers. The plan would lower the top corporate tax rate to 25 percent from 35 percent, while also nearly eliminating U.S. taxes on American corporations’ earnings from overseas operations.
"Our budget spurs economic growth with bold tax reform – eliminating complexity for individuals and families and boosting competitiveness for American job creators," Ryan said in a Wall Street Journal opinion piece this morning outlining his new "Path to Prosperity" budget. "We reject calls to raise taxes, but revenue nevertheless remains steady under our budget because we close special-interest loopholes. More important, our reforms will grow the economy – and the faster the economy grows, the more revenue the government will have to meet its priorities and start paying down the debt."
Ryan claims that his budget would tackle excessive government borrowing head-on by cutting debt as a share of the economy by roughly 15 percent over the next decade. But his plan does not include specific offsets for the hundreds of billions of dollars in proposed new tax cuts, or detail how those tax changes would impact the long term deficit.
Ryan told reporters that his tax-overhaul plan would be "revenue neutral," meaning the overall cost would be offest with the elimination of other tax breaks and loopholes. while acknowledging that Congress would have to consider scrapping some highly popular tax shelters, he would it would be up to the tax-writing Ways and Means Committee to make those decisions.
"We believe that is an emerging bipartisan concensus – just like there is on Medicare – on tax reform," Ryan said. "The ony problem with this consensus is that the president nd the Democrats are not part of it. The president just gave us a budget that says raise tax rates and add [provisions] to the tax code. More complexity, higher tax rates that lead to more cryonism and less economic growth. We're saying, keep the revenue baseline as it is, but replace the tax code... That is the result of both political parties loading up the tax code with special interest loopholes."
The House GOP plan immediately drew fire from the Obama administration and congressional Democrats who are calling for tax equity and higher rates on wealthiest Americnas.
"The Republican proposal [would] end the Medicare guarantee, shift costs to seniors, and let Medicare wither on the vine, while providing billions in tax breaks for Big Oil and special interests, and destroying American jobs," said House Democratic Leader Nancy Pelosi, D-Calif. "The American people have already rejected this plan before, and this year will be no different. Americans' priorities are clear: Republicans must work with Democrats to preserve and strengthen Medicare, not dismantle it. We must act to create jobs and grow our economy."
Similarly, progressive budget experts called foul. “How can you consider these real tax proposals when all he’s saying is ‘Here are all the things we’re going to do to cut taxes, here’s the revenue we’re going to have, but by the way those two numbers don’t add up,” said Michael Linden, Director of Tax and Budget Policy at the Center for American Progress. And while wanting two tax brackets for individuals instead of six is a change “that’s not what defines a tax code,” Linden said. “What defines a tax code is what makes up taxable income, and he did not identify a single tax break, deduction or distortion that he would remove, fix, or amend. Not one.”
Ryan's tax overhaul plan is quite similar to that of GOP presidential candidate Rick Santorum, who earlier this year proposed dropping the number of tax brackets from six down to two at 10 and 28 percent and eliminating the Alternative Minimum tax. However, Santorum would cut the corporate tax rate from 35 percent to 17.5 percent and completely exempt domestic manufacturers.
Former Massachusetts Governor Mitt Romney would take a slightly different approach, retaining six individual income tax brackets but cutting rates by 20 percent across all of them. But like Ryan, Romney endorses a corporate rate cut to 25 percent.
In total contrast to all three plans, the Obama administration called late last month to lower the top corporate tax rate from 35 percent to 28 percent, while ensuring that U.S. manufacturers pay no more than 25 percent.