Yesterday I talked about how Republicans might consider a tax increase, which I argue would actually help them develop the next generation of fiscal conservatives, so long as they work the process carefully. I promised to spend by post today talking about a plan that they might pursue which could actually deliver on a number of ideological and campaign promises. I am aware that the pursuit of tax increases is political poison for any Republican, but that doesn't mean that the party can't explore the option.
You might remember that towards the end of 2013 there was talks of a "grand bargain" between the two political parties, where they would rally around some blueprint for the future of our countries health. This, of course, was not the first time. You might remember the "super-committee" charged with finding significant budget reductions in order to offset "devastating and indiscriminate" cuts across broad swaths of the federal government's budget. They failed and eventually the government needed to fund it's own operations again, and we ended up putting ourselves through a series of unnecessary fiscal crisis, one after another. This story is quite interesting but highly tangential to the topic at hand. I already doubt I'll come close to the 10 minute time limit so I will try my best to be succinct. Suffice it to say here, that both parties found themselves at the bargaining table, under significant time constraints, attempting to forge some groundbreaking bipartisan compromise.
I think many of us were surprised when they actually came up with some modest compromises and effectively funded the government for about 2 years (I believe till just after the 2014 election cycle, how about that). Nevertheless, this compromise bill is a far cry from the fiscal overhaul that filled the dialogue leading up to the discussion. I had, at the time, developed a broad, groundbreaking, idealistic and (ideally) bipartisan idea. This idea I will outline briefly below:
1) This bill would be strictly a policy bill, there would be no spending or spending cuts attached. The idea here is that Republicans could then vote for the bill, despite the possibility of raising taxes, because it was revenue neutral. Also, we have seen that the debates regarding specifics usually fall apart because of in-fighting and bickering.
2) This bill would incrementally reduce the budget over 10 years, ending with a balanced budget after one decade. I don't think that Democrats would go along with a balanced budget amendment that went into effect immediately. This would greatly tie their presidents hands with no guarantee that any future presidents would hold themselves to the same standard. Besides that, austerity might work but it has to be implemented incrementally, shocking the system is likely to make any economic situation worse.
3) This bill would mandate that we hit specific budget reduction targets and would guarantee we did so. This would happen by setting the tax rate for the following year based on the prior year's expenditures. The more the government spends, the more it taxes; this is very simple and how it should be. I should be clear, this isn't an argument against government (I think there are many things that we do, and should, rely on for) it is merely an argument for fiscal discipline. Because this burden would be shared across the board (save perhaps for some very low income individuals) there would be incentive for people across the socio-economic spectrum to carefully consider the costs of the programs that they advocate for. There would be limited and specific mechanisms that would allow lawmakers to bypass this control device; off the top of my head i'm thinking a significant pattern of sluggish economy that created unacceptably high unemployment & a declaration of war by Congress. Otherwise, a supermajority would be required to remove the budget reduction mechanism.
4) This bill would allow the tax code to vary and fluctuate yearly. It would NOT create a flat tax, this proposal is a guaranteed deal-breaker with democrats and for good reason. I'm no mathematician, but I think the principles i'm advocating for here are relative simple to think about logically. Instead of having tax brackets where income up to a certain threshold is taxed at one rate and income over that threshold is taxed at another rate, all income would be put onto an income slope and every dollar would be taxed at a slightly higher rate than the one before. Essentially, the further you are from the mean and median income range, the greater the variation in your tax rates. If your income is two standard deviations from the average income, than the last dollar that you made would be taxed two standard deviations more than the dollar you made that was the average amount of income across the country. I get that this seems complicated, but I think the statisticians and mathematicians could actually make this happen rather easily.
5) It would simplify the tax code by eliminating all tax breaks and deductions across the board. This applies to businesses and individuals, to families and students; both parties would not approve of some of these eliminations but should remember that by eliminating them they are lowering the tax burden on everyone. It would not prevent lawmakers from re-establishing some or many or even all of them again in the future, it just voids the ones that have already passes. We do this because every deduction we have approved has been on the backs of future generations, has been on the credit card and may not have been carefully thought out. Now that we know that they will all be paid for, we should again debate the merits of each. Admittedly this process would take a lot of time, I assume that the passage of this bill would require at least a one year waiting period to work out some deals as far as what deductions we want to keep and which we should get rid of.
6) This bill would raise the debt ceiling to the point where it would end up at 10 years into the future when the budget has been guaranteed to be balanced. It would also guarantee that the government be funded in its entirety or not at all, there would be no piecemeal funding plans that attempted to circumvent funding programs that some party didn't approve of but which were passed legally. By ensuring that all funding would be stopped if any funding were stopped, we could eliminate any potential that the government would be taken hostage by any party hell-bent on an ideological pursuit of some goal that was contrary to those which had been passed.
If we put all these things together, I think we come up with a bill that largely resembles the Republican party's platform, but is one that Democrats could actually vote for. Ironically, i think it might be the GOP that would actually prevent this from passing, just because of their knee-jerk aversion to the potential that taxes could go up at all. I hope that my last blog, Republican Budget Strategy, sufficiently explains why I think this is a short-sighted strategy. What do the Republicans get? A bill that does not spend even one penny of money for new programs, that guarantees a balanced budget within 10 years, that simplifies the tax code for businesses and individuals, and one that fosters the growth of the next generation of fiscal conservatives. The Democrats, however, would stop having to hassle over funding the government in stop-gap measures, the ability to show that they are actually the fiscally responsible party, protections against any flat-tax movement, elimination of subsidies for large corporations and most importantly, budget reduction that functions primarily through increased tax revenue rather than mandatory spending cuts. This, I think, is really a grand bargain.
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