EconoMonitor

Ed Dolan's Econ Blog

Choice of Ryan as VP Puts Tax Reform Back on the Table

I am thrilled by Mitt Romney’s selection of Paul Ryan as his running mate. I say that not because of its effect on the outcome of the election, which has yet to play out, but because it puts tax reform squarely back on the table.

Fixing the tax code is a two-part process that simultaneously lowers tax rates and broadens the base by closing loopholes. Those elements of reform are essential whether they are implemented in a way that increases revenue or is revenue neutral. Ryan has been very clear about the first element. He advocates a two-bracket personal income tax with 10 and 25 percent rates. He is not so clear about the second. In principle, he also endorses broadening the base, but he has refused to specify just which deductions, exclusions and preferences will have to go.

As long as he was just Congressman Ryan, head of the Budget Committee, he had a convenient alibi for his reluctance to be specific. As he told Fox News back in March, ““That’s what the Ways and Means Committee is supposed to do. That’s not the job of the Budget Committee.”

It was the old Wernher von Braun defense. In the words of Tom Lehrer’s song, “Once the rockets are up, who cares where they come down. That’s not my department, says Wernher von Braun.”

As vice-presidential candidate, Ryan will find it harder to use that dodge. The presidential team is supposed to lead, not sit back and wait for Congress to make back-room deals. If an interviewer or debate opponent asks just which tax breaks should go, there is no place for Ryan to hide, nor is there any place for Romney to hide, since he is the one who put tax reform back on the table by choosing the Wisconsin Congressman.

That brings us to Romney’s own tax situation. Things would be easier for the GOP team if his failure to release more returns indicated nothing more than a character defect, but that is not all that is at stake. As I argued back in January, Romney’s taxes highlight what is wrong with the whole system, especially the perverse way that high corporate tax rates interact with low personal rates on capital income.

Candidate Ryan is going to face frequent, pointed questions about his often-stated views on tax reform. How is he going to answer? I see three possibilities:

1.       “Don’t be frightened off by my rhetoric. We aren’t really serious about tax reform; we’ll be happy just to keep rates low for top earners and leave the rest of the system as it is.”

2.       “I was serious when I told The New York Tmes that ‘The tax code is patently unfair: many of the deductions and preferences in the system — which serve to narrow the tax base — were lobbied for and are mainly used by a relatively small group of mostly higher-income individuals.’ I stick by what I have said: the wealthiest Americans should pay an effective tax rate of around 25 percent, and that starts with my running mate.”

3.       “As a team, we’re serious about the concept of tax reform, but we’re going to let Congress fill in the details. If you’re among the 16 percent of Americans who think Congress has been doing a good job, vote Romney-Ryan!”

Somehow, all of these answers seem awkward, but Paul Ryan is a smart guy. Maybe he’ll think of something better.

6 Responses to “Choice of Ryan as VP Puts Tax Reform Back on the Table”

RichAugust 14th, 2012 at 10:40 am

Ryan's plan "prmises" to balance the Federal budget by 2040. That's 28 years from now. Will he still be in office then? Bush "promised" to balance the budget by 2012. Yeah sure. Don't be fooled by the policiticians, they make a lot of false promises. 2040 means never.

benleetAugust 14th, 2012 at 11:48 am

Government programs remove 13% of the population from poverty, leaving 16.0% still in poverty. The Ryan/Romney budget would slash programs to the poor, as 62% of the cuts in spending would be to those programs. See the CBPP.org articles about his plan to reduce government's non-defense discretionary spending by 59% in 2022. About tax fairness, it's a minor issue, but a look at Citizens for Tax Justice shows the effective overall tax rate for all tax payers, and the wealthiest 1% pay 29.0% while taxpayers with $40,000 income pay 25%. Hardly progressive. Did you know that the 75% of workers (112 million) filing W-2 forms to Social Security Administration earn collectively $1.7 trillion, which is the same amount (actually a little less) than the total personal income of the top 1%? The problem is not tax policy, it is income distribution. The benefit of having Ryan on the ticket is that many people will catch on to the absurdity of our economy. My blog, http://benL8.blogspot.com

ThomasGrennesAugust 14th, 2012 at 12:07 pm

A more elevated discussion of tax, spending, and debt policy by all candidates would be
a welcome improvement over discussions of birth certificates, personal tax returns, and religion. Washington Post columnist Ruth Marcus and people at the non-partisan Committee for a Responsible Federal Budget (www.crfb.org) have called for all serious candidates to submit a ten year budget in a standard form that would allow it to be scored by the Congressional Budget Office. This would allow the public to make meaningful comparisons across candidates. It has been resisted by candidates, because it would make it difficult to offer another $1 of benefits to a special interest group without reducing spending on other programs, raising taxes, or increasing borrowing. The report of the Simpson-Bowles Commission could be used as a basis of comparison.

DiranMAugust 14th, 2012 at 12:36 pm

Why jump on Ryan when Obama does not know his ass from his elbow on these complex issues and his only tune is cheap class warfare? Obama has no qualifications in economics nor experience in Congressional budgetary matters. Both Romney and Ryan have better education and skills in these matters by far. It is really a no brainer here!

Obama wants people on welfare and entitlements like most Democrats to have a captive class of voters. This is the norm in European politics, that has now reached a dead end. I have lived this in Greece and know where this leads. Obama is a relic of the 1960's cultural revolution with a dreadfully wrong mindset.

Why do so many US academics cling to failed ideas from Europe that do not work and unable to see reality!

RichAugust 21st, 2012 at 11:44 am

Bush cut taxes and boosted spending, sending us on a debit binge that has accelerated our decline. We are sinking fast, but the politicians party on as we borrow from our enemies so they can purchase votes at the next election.