Fresh off a budget agreement that rolls back spending cuts approved with strong bipartisan support in 2011, Rep. Paul Ryan (R-WI) and Sen. Patty Murray (D-WA), chairs of respective House and Senate budget committees, openly and optimistically discussed the possibility of a tax reform deal that could happen next year.
“But the fact that we’re doing this, prevent shutdowns, passing bipartisan legislation, it passed the House— 332 to 94, majority of both parties. That’s a good step in the right direction,” Ryan told Meet the Press host David Gregory in a joint appearance with his Senate counterpart. “You gotta, you know, crawl before you can walk before you can run.”
“I’m hopeful, as a Ways and Means member as well, that we can start moving tax reform legislation,” he said, before Gregory, who surmised that Republicans don’t want tax reform, cut him off.
Ryan disputed that notion, telling the host to “[w]atch the Ways and Means Committee in the first quarter of next year,” which, he said, will be “advancing tax reform legislation because we think that’s a key ingredient to getting people back to work, to increasing take-home pay, to grow this economy.”
Gregory asked if tax writing committees, the chairs of which have been working on tax reform for several months, could come to some agreement because of the philosophical differences between the two parties. On one side, Republicans appear to want tax reform that is pro-growth and purports to use new revenues generated to pay down debt obligations. On the other, Democrats want to use new revenues to finance spending.
“[W]here the divide comes is what you would do with any revenue that was generated from that,” Murray conceded. “But that doesn’t mean we couldn’t ever find a compromise with that. It would be an intense discussion. There was intense discussions in here, in this room. But yes, you can find that ground.”
It really is well past time to get some sort of broad-based pro-growth tax reform, but the devil is in the details. Any projected new revenues achieved through closing loopholes and limiting or eliminating tax deductions should be used to lower overall tax rates. That, in turn, will spur economic growth and lead to more revenues in government coffers.
But the tax reform discussion overlooks the elephant in the room, which is the growth of federal entitlement programs. In September, the Congressional Budget Office (CBO) released its annual long-term budget outlook. This report painted an ominous outlook, finding that spending as a percentage of GDP to rise to 26.2% by 2038, based on current law, and federal revenues will come in around 19.5%, which is higher than the 17.4% average between 1973 and 2012.
Obviously, pro-growth tax reform that would produce higher revenues through increased economic activity could help close that gap, but spending remains the real problem, and until that’s address in a substantive way, through reform of federal entitlement programs, tax reform is really just a red herring.