Romney adviser open to fiscal cliff tax increases

Hubbard, who is dean of the Columbia Business School, says that, while keeping today’s marginal income tax rates in place, deficit reduction can come from limiting the charitable and home-mortgage interest deduction and the exclusion for employer-based health insurance.

During the presidential campaign, Romney was vague on what deductions he would look to limit. At one point he floated a cap on total deductions. 

Hubbard also puts a clear red line down: taxes should not exceed 20 percent of the economy. 

That is higher than the 18.5 percent called for in the House-passed Paul RyanPaul Davis RyanGOP leaders pitch children's health funding in plan to avert shutdown Lawmakers see shutdown’s odds rising Fix what we’ve got and make Medicare right this year MORE budget or the 15.8 percent of GDP today. It is very close to the 19.9 percent called for in President Obama’s 2013 budget.

“The present tax system can raise at most about 20 per cent of GDP in a booming economy. A government of, say, 25 per cent of GDP cannot be paid for by changing rates in such a system,” Hubbard warns. He says a value-added consumption tax would be necessary.

Hubbard goes on to say that limiting defense and non-defense spending and major entitlement reforms must also be part of a deal. During the campaign Romney called for increase in defense spending. 

If Congress fails to act, $600 billion in automatic tax increases and spending cuts will hit in January, likely sparking a recession. Emerging wiggle room on future tax revenue through code reform could allow for a deal that replaces these cuts and increases.