Debt reduction must not play second fiddle in tax reform

Debt reduction must not play second fiddle in tax reform
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On Wednesday, the White House released its long-hyped framework for tax reform, which was met with wide support among a policy community eager for victories following a difficult few months of fits and starts on health-care reform.

The excitement is not only because something might actually pass, but also because the brief overview suggests a plan well worth supporting. It would, to name just a few items, reduce individual tax rates to three brackets (12, 25 and 35 percent), allow full expensing, nearly double the standard deduction, repeal the estate tax and reduce the corporate tax rate.

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The devil is in the yet-to-be released details, with some critics beginning to worry about a potentially troubling aspect of the framework — there isn’t really a plan to avoid blowing a hole in the deficit.

 

For instance, the Committee for a Responsible Federal Budget has estimated that the plan would amount to $5.8 trillion in cuts and about $3.6 trillion in increases, adding $2.2 trillion to the deficit. The administration, meanwhile, claims that the plan would actually cut the deficit by $1 trillion.

Until full details are hammered out and released, that rather startling difference in estimates largely comes down to whose guesses are more optimistic and who is more inclined to trust dynamic assumptions — that is, the presumption that economic growth will result from tax cuts and grow revenues along with it.

One does not need to be a committed supply-sider to see that the status quo is burdensome. The tax code is remarkably outdated, and according to some estimates, taxpayers spend 8.9 billion hours every year just on tax compliance, costing the economy $234.4 billion annually. The 10-million-word code is long overdue for simplification and “unrigging.”

But as Democrats and Republicans neatly swap positions on how much the deficit matters, both sides are at risk of missing the point. Debates over revenue offsets and dynamic assumptions are important, but the real culprit behind rising deficits and the $20 trillion national debt is runaway spending.

Yet, many in both parties still stubbornly ignore this issue, especially the items that drive the vast majority of spending — the nation’s massive (and massively unsustainable) mandatory programs.

Out of a misguided but well-intentioned desire to avoid impacting current beneficiaries, both parties seem happy to skip along the path that will soon lead to dire consequences not only for beneficiaries but for the entire economy.

Fiscal responsibility, much like Ronald Reagan’s famous three-legged stool, cannot be achieved with too-narrow a focus.

Truly reforming our nation’s finances requires taking aim at a broken and outdated tax code, but it must also include steps toward reining in ever-growing liabilities and instituting process reforms that can make it possible for Congress to operate under regular order and within a real budget framework, not endless short-term measures and governing by crisis.

What should be an opportune time to take steps toward these goals — government united under a party that claims to support them — has thus far included a total failure to make the tiniest health-care reforms and a dreadful debt limit deal that traded more spending for more debt.

Now, Congress charges ahead on tax reform, reticent to reveal full details of how their plan will ensure deficits do not balloon.

Of course, it’s simply too early to say with any certainty what the deficit impact of the "Big Six’s" plan will be, but Republicans should move forward carefully — even as small-government advocates are cautiously optimistic about long-awaited tax reform, we must make sure not to forget the other legs of the fiscally conservative stool.

Jonathan Bydlak is the founder and president of the Coalition to Reduce Spending, an advocate for lower federal spending, and the creator of SpendingTracker.org. A fiscal policy expert, he also served as director of fundraising on Ron Paul's 2008 presidential campaign. Follow him on Twitter @jbydlak and @Reduce_Spending.