Republican Comes Up With Tax-Reform Plan That’s Good

By Jonathan Chait

The tax-reform proposal unveiled yesterday by Dave Camp, chairman of the House Ways and Means Committee, does something remarkable: It actually reforms the tax code. It doesn’t use the pretense of reform to shift the tax burden off the rich, as Republican “tax reform” plans usually do, and it does not use hand-waving to gesture in the direction of reform without following through. Camp has actually plunged his hands into the guts of the tax code and pulled out item after item. It may be the most impressive and ambitious domestic policy proposal crafted by a major Republican in a generation.

Granted, this is a low bar for a fanatical and brain-dead party, but it’s notable all the same. The criticism from the left is that Camp’s plan fails to increase tax revenue...The prospect that tax reform will spur the sort of rapid growth envisioned by its advocates is highly optimistic. But it’s not delusional. Republicans traditionally insist that the incentive effects of cutting tax rates are so powerful they overwhelm conventional economic factors. The Journal editorial page has spent decades building a shrine to the spectacular wrongness of supply-side economics, fervently insisting that Bill Clinton’s 1993 tax hike on the rich would destroy the economy and fail to increase revenue, and then insisting with equal fervor that George W. Bush’s tax cuts for the rich would usher in a new age of prosperity and a gusher of new revenue.

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The flaws in Camp’s proposal lie in the details, not in its conceptual goal. It uses a host of timing gimmicks to produce short-term revenue gains that will fade over time. It spares some Republican constituencies, like oil drillers, while gleefully sticking it to green energy. The plan doesn’t appear to raise taxes on the poor overall, but early analysis suggests it raises taxes on some categories of poor families.

Camp’s plan appeals to Republicans because it reduces both the level and the number of tax rates. From the liberal perspective, those are pointless goals. They’re not worth giving up anything to achieve. On the other hand, they’re not incompatible with a useful reform of the tax code. If done right, those elements can bring along conservative support for elements of tax reform that liberals do want.... Camp does accomplish some of those things. His plan would impose a new fee on large banks (which enjoy an implicit subsidy by virtue of being so large they’re apt to receive a bailout if they fail) and caps the value of tax deductions, both goals embraced by Obama. It eliminates the carried interest loophole. It sets the top tax rate at 35 percent, not the fantastical 25 percent rate proposed by Mitt Romney, Paul Ryan, and other Republicans. Camp is actually committed to the goal of reforming the tax code in a way that maintains (rather than reduces) revenue levels, and holds the relative burden on the rich and poor constant.

http://nymag.com/daily/intelligencer/2014/02/republican-designs-tax-reform-plan-thats-good.html

The Back to Pelosi Budget

Soaring tax revenues will hit 18.3% of GDP in fiscal 2015.

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One of the President's more amusing fiscal sleights-of-hand is his claim that the federal government has been enduring "austerity." Taxpayers should be so lucky. The nearby table shows the arc of tax revenues and spending during the Obama Presidency, and you can see they are both up. Washington has rarely had it so good...His budget would increase outlays by nearly $450 billion from fiscal 2013, and almost none of it for defense. Spending in 2015 would hit 21.4% of GDP, up from 20.8% in 2013. Outlays would rise by another $1 trillion by 2020, much of it fueled by the exploding costs of ObamaCare, and would reach an astonishing $6 trillion by 2024. If Democrats do take the House and Senate, you can bet spending will rise even faster.

Mr. Obama's budget nonetheless says that the deficit will fall to $564 billion in 2015, or 3.1% of GDP. How would that happen? Well, because tax revenues are booming. Revenues hit $2.77 trillion in 2013—a new federal record—and the Obama budget foresees them growing another 20%, to $3.33 trillion in fiscal 2015. Receipts will hit 18.3% of GDP in 2015, well above the 40-year average of 17.4%, and they'll keep rising to 19.9% a decade from now. But Mr. Obama says the government is starved for revenue and thus any tax reform must raise another $1 trillion on top of all this.

The President's budget proposes to spread all this cash around to various voter groups and Democratic constituencies. Mr. Obama would fund public preschool for every four year old and create a new fund to underwrite paid family leave in the states. There's more for job training programs that haven't shown they can train workers for jobs, and more for shovel-ready road projects that may or may not be shovel-ready. And don't forget a new $1 billion fund for efforts to combat climate change, which means more payola for green crony capitalists.

The big spending loser is the military, which will impress Vladimir Putin, though not in a good way. The proposed 2015 $623 billion defense budget is 3.4% of GDP and would be cut by nearly $39 billion more in 2016 to 3% and 2.3% by 2023. The last time the U.S. spent that small a share of the economy on defense was 1.7% in 1940...By contrast, Mr. Obama's budget leaves entitlement program spending on cruise control. He has dropped from the budget last year's modest proposal to make the calculation for cost-of-living increases in Social Security more accurate—a bow to the protests by liberal Democrats.

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