THE ISSUE: Rep. Paul Ryan, R-Wis., has offered a budget plan with two separate pieces spending cuts and tax overhaul that passed the House 228-191 on March 29. Most attention has focused on the spending cuts to Medicare and other federal programs.
Would Rep. Paul Ryan's tax plan improve the U.S. tax system?
Pia Lopez: No, its a big step backward
Our federal tax system currently is collecting historically low revenues as a share of the national economy.
Since the presidency of John F. Kennedy, federal taxes have ranged from 17.5 percent to 20.6 percent of gross domestic product. Under President Barack Obama, taxes have averaged 15.2 percent of GDP historic lows not seen since the Great Depression and World War II.
And it shows. Since the Bush era, we've been borrowing to pay for wars in Afghanistan and Iraq, basic government services, recovery from deep recession and investments in infrastructure.
Rep. Paul Ryan's tax plan would make our financial problems worse.
Ryan would cut tax rates on the highest income bracket to levels not seen since the Roaring '20s at a time when the wealthiest Americans already are paying the lowest tax rates in 50 years.
He would do this on top of Bush-era tax cuts in 2001 and 2003, which Ryan would make permanent, instead of letting them expire this year. Surely, we have learned from the Bush era that tax cuts do not pay for themselves.
Ryan also would drastically cut the corporate rate and essentially eliminate U.S. taxes on the foreign profits of U.S. corporations encouraging yet more shifting overseas.
Ryan claims, apparently with a straight face, that his plan is revenue neutral that he would make up revenue losses by closing loopholes. Yet since first proposing his plan in 2008, he has yet to name a single tax credit, deduction or special tax break he would eliminate. Not one.
Under Ryan's plan, according to the well-respected Tax Policy Center, federal taxes would bring in $31.1 trillion over 10 years, or 15.4 percent of GDP keeping us at current low levels.
But that's not his intention, he says. He wants to close enough loopholes to maintain revenue "consistent with historical norms of 18 to 19 percent." Do the math. He would have to find $5 trillion to $7 trillion in loopholes to close over 10 years. And yet he doesn't name a single one.
Even worse, Ryan caps revenues at 19 percent of GDP. In the late 1990s, federal revenues ranged from 19.8 to 20.6 percent of GDP a period of prosperity and budget surpluses, when we were actually able to reduce debt run up in the 1980s. Realistically, we may need to return to those levels to get our finances in order.
The Ryan tax plan is a transparent sham more of the voodoo economics that got us into the current financial mess.
Pia Lopez is an editorial writer at The Bee.
Ben Boychuk: Yes, its a start
Paul Ryan's plan is far from perfect, but to call it a "transparent sham" is unfair. Ryan's proposal might be better described as the beginning of a fresh discussion about what a sane tax code should look like in the 21st century.
Here's what we can say about Ryan's proposed reforms today: They get some big things right and leave some major details incomplete.
That's politics for you.
The virtue of Ryan's proposal, at least in theory, is that it would substitute greater simplicity and fairness for Byzantine complexity and favoritism.
Any tax reform worth considering should broaden the tax base in order to keep rates low and reasonable for everyone, rather than rely on extracting more and more income from the wealthy few.
Under the current code, about half of all Americans pay no income tax, or in some cases receive a "refund" on taxes they didn't have to pay in the first place. Meanwhile, America's richest 5 percent earned 31.7 percent of the nation's adjusted gross income in 2009, and paid roughly 58.7 percent of federal income taxes, according to the Tax Foundation.
The tax code should also reward investment and encourage growth, not punish it or drive wealth overseas. Ryan would replace the current six tax brackets with just two 10 percent for income up to $100,000 for joint filers, and 25 percent for everyone else and would cut the corporate tax rate from 35 percent (currently the highest in the world) to 25 percent.
What it leaves incomplete: Whose loopholes, exceptions and carve-outs would go away. Pia is correct that the Ryan plan lacks crucial specifics. As a political matter, a deeply divided and partisan Congress would need to hash out the politically volatile details. That's why it's wise to consider Ryan's plan a start, and not much more.
What really distinguishes Ryan's plan, however, is that it's "a plan." The prevailing alternative apparently is the "Buffett Rule."
President Barack Obama would love to impose a minimum tax of 30 percent on any American earning more than $1 million a year. In January, the president touted the idea as a way to balance the budget, slash the debt and, above all, impose more "fairness" upon the land.
As re-election gimmicks go, the "Buffet Rule" is a lame one. The Treasury Department says the scheme would raise at most $5 billion a year, or about one-half of 1 percent of the current federal budget deficit.
Forget Obama's faux "fairness." At least Ryan is getting the right discussion started.
Ben Boychuk is associate editor of the Manhattan Institute's City Journal, www.city-journal.org/california.