Budget Plans and Budget Talks: The GOP's Chasm on Taxes

Here's what I don't get about House Majority Leader Eric Cantor quitting the budget talks because he opposes any tax increases: Nearly every conservative budget plan out there -- including the Ryan plan -- embraces a fiscal scenario in which taxes consume a greater share of GDP than they do today. Everyone on the right knows taxes will have to increase somewhat, so why doesn't Cantor just accept the inevitable -- especially with the stakes so high?

Consider the details.

Taxes are now near a postwar low, consuming just 14.9 percent of GDP in 2010. The last time taxes were this low was in 1950 -- before we spent money on things like Medicare and NASA. From 1952 through 2001, taxes ranged from 17.5 to 20.6 percent of GDP. 

Most conservative budget plans imagine that revenues will rise again. Ryan envisions taxes rising to 18.5 percent to GDP by 2022 and 19 percent in 2030 and beyond, according to the CBO. The Heritage Foundation's budget plan also has revenues rising to 18.5 percent of GDP. (Which, perhaps not coincidentally, is about the level they were at when Ronald Reagan left office.) A budget plan developed by scholars at the American Enteprise Institute has taxes rising to 19.9 percent of GDP. 

Even the hardline balanced budget amendment being championed by Jim DeMint would cap revenues at 18 percent of GDP -- a 20 percent increase in taxes over where we are today. 

Now, to be sure, these anticipated increases in revenue mainly reflect an assumption that economic growth will expand taxes as a percentage of GDP. This happened between 2004 and 2007, when revenues rose from 16.1 to 18.5 percent of GDP even as rates remained unchanged. But the longer historical record suggests that a large jump in taxes as a percentage of GDP without a change in revenue policy is very rare. Certainly there has never been a 20 percent jump of the kind imagined under most of the plans. The reason is obvious: While revenues rise amid growth, the economy also grows larger so the revenue slice of the pie does not necessarily get much bigger. 

Whatever the case, the bottom line is that all conservative budget planners imagine a higher tax burden on the economy than currently exists. So what's so wrong with embracing that burden sooner rather than later? 

Also, given that substantial revenues can be raised without actually increasing tax rates -- by closing loopholes and ending tax breaks -- Republicans have a lot of wiggle room in the budget talks. 

Many observers suggest that Cantor's walkout was long planned and is no surprise. Maybe this is, in fact, mostly theater, with Cantor and John Boehner playing good cop, bad cop. Cantor caters to the Tea Party base by walking out, while Boehner stays to cut a deal with new revenues raised through "tax reform."

That sounds right to me. Ultimately, taxes will go up -- just as the right's budget thinkers say they must. 

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