Photo: Getty Images/Chip Somodevilla
Paul Ryan Just Made Tax Reform Harder
Economics

Paul Ryan Just Made Tax Reform Harder

By Photo: Getty Images/Chip Somodevilla

House Budget Committee Chairman Paul Ryan released his 2015 budget on Tuesday and, as usual, it calls for massive spending cuts of $5.1 trillion. But the most important part of the budget has nothing to do with spending: It has to do with tax reform. Ryan, who is term-limited as chairman of the Budget committee, is expected to take the gavel of Ways and Means next year. That’s the committee with jurisdiction over taxes. Ryan undoubtedly wants to reform the tax code. What Congressman doesn’t? But this latest budget would severely constrain his ability to do so. It’s yet another example of how Republicans are destroying their own agendaby making fantastical, mathematically impossible promises that no real tax and spending plan could ever fulfill.

Here, directly from the budget document, is what Ryan says he wants to accomplish with tax reform:

  • Simplifies the tax code to make it fairer to American families and businesses and reduces the amount of time and resources necessary to comply with tax laws;
  • Substantially lowers tax rates for individuals, with a goal of achieving a top individual rate of 25 percent and consolidating the current seven individual income-tax brackets into two brackets with a first bracket of 10 percent;
  • Repeals the Alternative Minimum Tax;
  • Reduces the corporate tax rate to 25 percent; and
  • Transitions the tax code to a more competitive system of international taxation

If that sounds familiar, it’s because basically every Republican paying lip service to tax reform has said some version it. The problem is that it’s not feasible to accomplish all of these things without raising the deficitsomething that Ryan, like most Republicans, has sworn he would not do. This has been obvious for quite a while, but the scoring of Dave Camp’s tax plan in February made it even clearer. Camp had hoped to consolidate the individual income tax code into two bracketsone at 10 percent and one at 25 percent. But such a tax scheme would relinquish too much revenue to make the numbers add up. To resolve this, he had to create a third bracket at 35 percent.

Camp also called for lowering the corporate tax rate to 25 percent and repealed the Alternative Minimum Tax. But doing so would cost the government more than $2.1 trillion over the next 10 years, according to the Joint Committee on Taxation’s score of Camp’s plan. To make up for this lost revenue, Camp would eliminate many tax deductions and impose some new leviesincluding the creation of a new a bank tax and taxing capital gains as ordinary income. Camp also proposed to keep the Affordable Care Act’s surtax on investment income.

Even with all of these revenue-generators, Camp had to rely on additional timing gimmicks to make his plan deficit neutral. But while it was a heroic effort to reconcile long-time conservative goals with arithmetic reality, Republicans reacted by getting as far away from it as they could. Senate Minority Leader Mitch McConnell and House Speaker John Boehner both shot down any chance of tax reform happening this year. On March 14, 54 House Republicans sent a letter to Camp opposing the bank tax.

Ryan could have used his budget to signal, even tentatively, an interest in Camp’s ideasor of a similarly reality-grounded approach to making the budget dollars add up. Instead, he did what Republicans have done over and over again in recent years: He promised fealty to principles that, whatever their individual merits, cannot exist in a fiscally responsible budget plan. In so doing, he’s making the same mistake that his old running mate, Mitt Romney, did in the presidential campaignmaking it impossible to build support for a real tax reform proposal that, inevitably, would fall way short of those goals. You can see it in the reaction to Camp’s proposals, which has become so toxic that Camp himself is now running from them. (On Monday, he announced he won’t seek reelection.)

Paul Ryan had a chance to learn from Camp’s failure. He had a chance to do what Camp could not: To set expectations at a realistic level. Instead, Ryan further ensconced the impossible goals Republicans have for tax reformand made his future job that much more difficult.

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