On March 9 the Tax Policy Center (TPC) released a preliminary analysis of the tax reform proposal contained in Rep. Paul Ryan’s (R-WI) Roadmap for America’s Future fiscal plan. The TPC analysis helps Ryan advance the tax reform ball considerably, but it also raises issues some of which need to be addressed by Congressman Ryan (R-WI), the author of the plan, and some by the TPC.
Perhaps most important of all is that the TPC analysis, along with a slew of commentary both favorable and unfavorable from other sources, confirms that the Ryan plan is a very serious, substantive foray into tax reform. The Ryan plan provides an intellectually sound, coherent and fundamental path to tax reform, and is part of a broader plan to resolve our long-term fiscal crisis. If it were otherwise, the tax reform component would be ignored.
The Ryan tax reform plan, which reforms both individual and business taxes to move toward lower tax rate systems, is intended to be revenue neutral over ten years when compared to a current policy revenue baseline; the TPC analysis suggests the plan is close to its target. It may even be closer than the TPC analysis suggests because of a pair of foibles in the TPC approach as well as simple differences in estimating methodologies.
What About the Economy?
The TPC analysis is a good first step, but critically leaves out some important information on economic effects. By way of analogy, imagine the Congressional Budget Office providing an analysis of health care reform and ignoring any references to the consequences for health care costs or whether the ranks of the uninsured would rise or fall. Policymakers want to know if the legislation would “bend the curve” and that it substantially reduces the ranks of the uninsured. Analysis lacking this information would obviously be woefully incomplete.
The TPC has done much the same by ignoring the stronger economy that would follow from enactment of the Ryan plan. As with health care reform and the uninsured, a fundamental motivation for tax reform is to improve economic performance, yet the TPC acknowledges its analysis is essentially static. Revenue forecasts aside, this is a substantial shortcoming of the TPC analysis that will hopefully be remedied in their follow-on work.
Foibles to Resolve
One foible in the TPC analysis is that it combines a rigorous methodology for assessing the revenue effects from the tax on individuals with a back of the envelope approach to estimating tax revenues from the new Business Consumption Tax (BCT) tax contained in the Ryan plan. If TPC does not have the tools for a rigorous assessment of the BCT, then so be it, but TPC should clearly indicate the difference in approaches and admit that its revenue forecast of the BCT carries an unusually high degree of uncertainty.
Another foible in the TPC analysis deals with the treatment of pass-through entities such as sole proprietorships. This is a difficult area and the TPC analysis usefully highlights an issue in the plan its designers may want to revisit. However, TPC arbitrarily assumes small business owners will take all their income in tax-exempt dividends rather than taxable wages. To be sure, this is a troubled area in the existing tax code, but the TPC assumption is most unreasonable, and creates an obvious downward bias in the total revenue estimate.
Finally, the TPC is known for its distributional analysis and it refers to distributional effects in its analysis. But where are the tables?
Flanked, again, by doctors in lab coats, President Barack Obama gave yet another speech this afternoon urging Congress to pass his health care reform plan.
The President again claimed his plan lowers health care costs. It doesn’t.
The President again claimed his plan would not give government bureaucrats or insurance company bureaucrats more control over health care. It does.
The President again claimed that “if you like your plan, you can keep your plan. If you like your doctor, you can keep your doctor.” That simply is not true.
The President again said his plan gives the American people the same health care as Members of Congress. It doesn’t.
The President again claimed his plan is paid for. It is not.
The only “new” wrinkle in this speech was President Obama much telegraphed call for “an up or down vote” on health care reform. Again the White House is completely out of touch with reality. The Senate has already passed Obamacare. It is currently sitting ready for a vote in the House of Representatives. The House could pass Obamacare into law by an up-or-down/simple-majority vote tomorrow if they so desired.
But the simple reality is that they don’t have the votes. The House may be controlled by an overwhelming Democratic super majority, but the Obama administration simply does not have the 50% plus one votes they need to turn their top domestic priority into law.
Now the President is claiming he has some new plan that he all of a sudden wants a brand new vote on in the Senate. But that is not going to happen any time soon. President Obama says he is open to four specific conservative ideas, but the White House has produced no details or even legislative language for this new plan. And even if the White House ever does produce such language, it would then have to go to the Congressional Budget Office for scoring.
More importantly, simply adding so-called conservative ideas to the bill does not change the fundamental direction of the proposal. The bills before Congress, including the President’s new additions, would still result in a massive shift of power over health care financing and delivery of care to Washington politicians and bureaucrats. The public has spoken, and it does not want a federal take over of health care.
Conservatives should continue to press the Administration and leaders in Congress for bipartisan solutions that are based on elements of common ground, including letting states take the lead on health reform, tackling the tax treatment of health insurance, sensible insurance market reforms, and an honest commitment to fixing existing health care programs that the government already controls.