Tuesday, August 14, 2012

Choice of Ryan as VP Puts Tax Reform Back on the Table. How Will They Handle It?

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.

Update: Since this was first published on Economonitor.com, the Romney campaign has issued a set of talking points that distances the campaign from details of the Ryan budget plan and includes extremely vague language on tax reform.

1 comment:

  1. I favor the first half of position #2. There is no need to cut top rates to 25%, but lower rates do promote prosperity, whichis the major engine for generating more tax revenue. The home-mortgage interest deduction, and so many like it, must go. Paul Ryan is the ultimate policy wonk. He will not shy away from any detailed questions asked of him. He won't apologize for his views or act ashamed of the financial success of his running mate.

    As for Congress, we must differentiate the House, which has offered several solutions, to the Senate, which sits on everything. The Senate race is perhaps even more vital than the White House situation. With 33 seats up for re-election, 23 are from Democrat seats (or those who vote Democrat), so don't forget that Congress is not a monolithic institution.