Tax Analysts Blog

America May Be on the Wrong Track, But Is Paul Ryan's the Right One?

Posted on Mar 15, 2013

Yesterday, Speaker of the House John Boehner blamed Republican losses in the last election on bad candidates rather than bad ideas. That’s a comforting thought, especially if you’re in the business of electing Republicans: just swap out the candidates and you're good to go. Bad ideas, on the other hand, are more stubborn creatures. And sadly for today’s GOP, they have more than a few of them.

Take Paul Ryan’s budget plan, for instance.

To be sure, there are things to like about Ryan’s budget, especially if we approach it as a statement of principle rather than governance. Ryan has given us a fine vehicle for continuing the debate over government and its role in American society. That alone is a valuable contribution.

The House budget also makes some useful observations about tax reform. On the subject of the corporate tax, for instance, Ryan makes a good point that many liberals try to avoid:

    While the vast majority of our foreign competitors have moved aggressively to lower corporate tax rates and update their international-tax systems, the United States imposes the highest combined federal-state corporate tax rate in the industrialized world and relies on an outdated international-tax regime designed more than 50 years ago, when the United States faced virtually no global competition.

As is always true when talking about corporate tax reform, there’s a lot left unsaid in this statement, including some facts (like relatively low effective corporate tax rates) that argue against any rush to a particular reform. But the corporate tax is pretty badly broken; no one would consciously design a system coupling high statutory rates with a flawed (and manipulable) tax base. That's the worst of both worlds. So Ryan's complaints are a useful prod to action.

Similarly, Ryan offers some useful thoughts about the individual tax, especially when he emphasizes the burdens of complexity. But Ryan runs into serious problems when he starts suggesting ways to make the tax code simpler. In particular, his emphasis on rate reduction and bracket consolidation is misconceived.

To begin with, “flatter” doesn't mean “simpler.” Even people filling out their tax returns by hand can use the tax tables in the back of the book to avoid all the complicated math.

But the real problem is distributional. Radically flattening and lowering individual tax rates would give rich taxpayers a nice fat windfall. But for most of us, it wouldn't do much. And for a few, the Ryan cuts would deliver precisely nothing.

According to estimates released today by the Tax Policy Center, the Ryan tax reforms would provide an average tax cut of $3,000 to American households. How awesome is that?

Well, not so awesome, at least if you’re living the life of an average household. Americans making more than $3.3 million a year would see a tax cut of $1.2 million. As Howard Gleckman points out on TaxVox, that represents a 20 percent increase in their after-tax income.

But for people in the middle of the income spectrum, the extra cash would come to just $900. For those in the bottom quintile, it would be just $40. And for a third of the taxpayers in the bottom group, the Ryan reforms would provide no relief at all.

In his introduction to the budget document, Ryan observes that "most Americans think we’re on the wrong track." But is this the right one? When Republicans go looking for an explanation of their political problems, they might start by taking a hard look at those famous ideas of theirs.

Read Comments (5)

vivian darkbloomMar 16, 2013

"According to estimates released today by the Tax Policy Center, the Ryan tax
reforms would provide an average tax cut of $3,000 to American households. How
awesome is that?"

It is hard for me to believe that someone working at Tax Analysts could write
something so completely uninformed and misleading.

Under the proposal, rate reductions are coupled with the elimination of
deductions and other tax preferences. The net effect is revenue neutral. The
$3,000 and other larger "tax cuts" refer here only to the effect of the rate
reductions and not the effect of other offsetting changes.

The TPC write-up was admittedly bad---so bad that it likely would lead many
readers to the same conclusion as Mr. Thorndike here.

But, is this really coming from Tax Analysts?

You can do much, much better.

Joseph J. ThorndikeMar 18, 2013

Well, it's probably fair to say that everyone could do much, much better -- if
Ryan would just give us something better to start with. But his refusal to
identify which tax preferences he wants to eliminate makes it hard to say, with
even a vague sense of precision, how everything will play out in the end. Matt
Yglesias made this point in his analysis of the TPC numbers for Slate:

"It's fine that Ryan doesn't want to usurp the role of the Ways & Means
Committee, but by naming specific tax rates without naming specific tax
deductions he's created a very confusing situation in which it's difficult to
say what the consequences of this approach would really be"

Sure, base broadening might (and probably would) change the distributional
analysis. But not necessarily for the better. Seems to me that when you decide
to get specific about your tax cuts and remain vague about your base
broadening, you invite the sort of analysis that TPC did (and I described).

amt buffMar 18, 2013

"Seems to me that when you decide
to get specific about your tax cuts and remain vague about your base
broadening, you invite the sort of analysis that TPC did"

You invite that sort of analysis from partisan operatives. TPC was once a cut
or two above that. The old TPC would make every effort to be non-partisan and
non-ideological. Where that was not possible on a given proposal, the old TPC
would avoid writing anything on that proposal even if the facts heavily favored
one side.

The new TPC jumps right into every partisan debate. Is this an improvement or
does it represent rapid squandering of the TPC's original nonpartisan brand?
Does the country really need yet another partisan think tank? Can't anyone at
today's TPC see the value in studious protection and re-cultivation of a
reputation for non-partisanship?

vivian darkbloomMar 18, 2013

“Seems to me that when you decide to get specific about your tax cuts and
remain vague about your base broadening, you invite the sort of analysis that
TPC did (and I described).”

Seems to me that you are offering rather strange and illogical justifications
for your own omissions. I discern three possible justifications in your
response:

1. The fact that Ryan has omitted to spell out in detail the tax expenditures
that will be cut to offset his stated rate cut goal entitles me to refer to the
entire budget plan as a “tax cut” and completely ignore the fact that they are
to be offset (and if not offset, rates won’t be reduced to the extent
indicated). The idea here seems that if Ryan fails to spell out in detail the
tax expenditure cuts he would like to see, I’m entitled to make an even larger
omission and fail to even mention that the budget proposes offsets, dollar for
dollar (and, if those offsets don’t occur, the rate cut will be lower). The
last time I heard an argument like that was on the playground: “But, Johnny
did it, too” (with the unstated implication that if he did that, I can do it
several times over).

2. As a variation of #1, I‘m in “good company”--- not just with Ryan; others
are doing it, too (Yglesias and the TPC), so why can’t I? If this is the
justification, your factual premise is not true. While the TPC and Yglesias
have rendered very one-sided and confusing analyses, you’ve done them one
better by simply ignoring half of the tax budget equation. As I indicated in
the initial comment, the TPC pretends, in an imaginary “first step”, that Ryan
is going to “cut taxes” (by lowering rates) and then, in an imaginary “second
step”, he is going to “increase taxes” (by reducing or eliminating tax
expenditures). In reality, what Ryan is proposing is a simultaneous
combination that results in no net tax increase or reduction. You don’t need
too read far into the Ryan plan to find this:

“Substantially lower tax rates for individuals, with a goal of achieving a top
individual rate of 25 percent.”

This, combined with the proposal to reduce tax expenditures and maintain
revenue on a static basis, clearly means if the tax expenditures cannot be
reduced sufficiently, the goal of achieving a top individual rate of 25 percent
has to be adjusted. That strikes me as a very sound policy approach and
certainly not one that is going to result in “tax cuts”, particularly to the
scale you very wrongly report in your column.

3. I predicted that TPC write-up by Gleckman would invite confusion and
selective quotation, but I hardly expected someone at Tax Analysts to be one of
the “victims” (or willing participants). You’ve explained half of the story
with the complete omission of the other half. And, you are blaming Ryan for
his lack of details? As I note below, he (and other politicians) have a
rational and legitimate reason for this approach. What is your excuse?

4. I’m just reporting and describing what the TPC said (via Howard Gleckman).
The implication here seems to be, again, “I’m in good company and I’m simply
parroting what my good company has related”.

Well, first, as I indicate above, you were not just describing what Gleckman
wrote; you were describing one-half of what was a very biased and confusing
story to begin with. Second, do you or do you not write for the specialist tax
publication called “Tax Analysts”? I expect this kind of parrot journalism
from non-specialist publications (which makes it even more imperative that
so-called specialists at the TPC and Tax Analysts take great care on what is
reported and how it is reported). Perhaps I’m mistaken, but, having been a
long-timer admirer and reader of TA publications, I’ve always had the
impression that the people working there don’t just parrot (much less parrot
one-half to the omission of the essential other half) of what other people
say. They do their independent thinking and analysis and report the story to
their readership in an objective and responsible manner, usually devoid of
excessive partisan slant and spin. I can, and do, often disagree with what TA
bloggers have to say here; however, there is no reasonable justification for
your presentation of "the facts" on Ryan's budget.

In the best of policy worlds, politicians would be free to set out detailed
plans on difficult decisions without fear of demagoguery. It is precisely
because of people like you that politicians will never fully specify in advance
the types of specific tax expenditure cuts they are proposing. And, Mr.
Thorndike, let’s be fair to Patty Murray---it is precisely the same reason she
(and others, including Obama, did not and do not fully specify which tax
expenditures they are going to cut in their budget and their failure to specify
how, precisely, the nearly $500 billion in additional taxes via “reserve funds”
will come from or exactly how their spending cuts will be acheived (why are you
and the TPC and Yglesias conveniently silent about that?). As a tax historian
you should probably know that these difficult decisions need bipartisan support
and the deals that are successfully made are most often done behind closed
doors so that neither party needs to bear the full political heat.

As I originally wrote, your piece was misinformed and misleading and fell far
short of what I expect of Tax Analysts. But, your subsequent “excuses” and
rationalizations are all the more disturbing.

Tom Field, we miss you.

AMT buffMar 20, 2013

" let’s be fair to Patty Murray---it is precisely the same reason she (and
others, including Obama, did not and do not fully specify which tax
expenditures they are going to cut in their budget and their failure to specify
how, precisely, the nearly $500 billion in additional taxes via “reserve funds”
will come from or exactly how their spending cuts will be achieved"

Of course she didn't give the details. She shouldn't give them. We all know
why.

It's basic politics that any plan which creates a large number of losers must
pass Congress within a very short time after it is revealed to the public.
Otherwise the losers gather their forces to defeat the plan. This was true of
the 1986 Tax Reform and it was true of Obamacare. It was true of Clinton's 1993
retroactive tax increase and it was true of Clinton's failed health insurance
reform.

To demand that a politician expose the details of who loses in a plan is to
demand defeat of that plan. Coming from people who surely know this, it's a
purely partisan act.

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