Dr. K’s column is an interesting one but it will never work because Barack Obama being the committed ideologue that he is – does not want to compromise but wants to conquer. When your end game is to transform America into something that only a European Socialist would love – doing what is best for the American people is not on your list of priorities. “The People” mean everything, but individuals mean nothing.
by Charles Krauthammer
Conventional wisdom holds that the congressional super-committee established by the debt-ceiling deal to propose further deficit reduction will go nowhere. I’m not so sure. There is a grand compromise to be had. It does, however, require precise sequencing. To succeed it must proceed in three stages:
(1) Tax Reform.
True tax reform that removes loopholes while lowering tax rates is the Holy Grail of social policy. It appeals equally to left and right because, almost uniquely, it promotes both economic efficiency and fairness. Economic efficiency — because it removes tax dodges that distort capital flows (and thereby diminish productivity) while cutting marginal tax rates (thereby spurring growth). Fairness — because a corrupted tax code with myriad breaks grants deeply unfair advantage to the rich who buy the lobbyists who create the loopholes and buy the lawyers who exploit them.
Which is why the 1986 Reagan-Bradley tax reform was such a historic success. It satisfied left and right, promoted efficiency and fairness, and helped launch two decades of almost uninterrupted economic expansion.
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(2) Revenue Neutrality.Every dollar of revenue raised by stripping out a loophole is to be returned to the citizenry in the form of lower tax rates. Initial revenue neutrality avoids ideological gridlock over tax hikes and ensures perfect transparency during any later alterations of that formula.
Start with the obvious boondoggles, from the $6 billion a year wasted on ethanol subsidies to your Democratic perennials — corporate jets, oil-company breaks, etc. That’s the fun part. Unfortunately, whacking that piñata yields but pennies on the dollar. The real money is in the popular tax breaks: employer-provided health insurance, mortgage interest and charitable contributions. Altering some of these heretofore politically untouchable tax breaks would alone be a singular achievement.
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(3) The Grand Bargain.Once you have serious revenue-neutral tax reform in place, the ideological horse-trading that is required for massive deficit reduction — tax hikes vs. entitlement reform — can begin.
Republicans will resist the former, Democrats the latter. But tax-reform-first makes possible the compromise that eluded John Boehner and Barack Obama. Boehner was willing to increase revenue by $800 billion. Obama was reputedly ready to raise the Medicare age and change the Social Security cost-of-living formula.
Remember: Tax reform will already have slashed rates radically. In one Simpson-Bowles scenario, the top rate plunges to 23 percent. Conservatives could at that point contemplate increasing net revenue by slightly tweaking these new low rates, say, back to Reagan’s 28 percent, still much lower than the current 35 percent and Obama’s devoutly desired 39.6 percent. The deviation from revenue neutrality would yield new tax receipts for the Treasury, in addition to those resulting from the economic growth stimulated by the lower rates.
Democrats would have to respond by crossing their own red line on entitlements. That means real structural changes. That means raising the Medicare and Social Security ages, indexing them to longevity (until 70 becomes the new 65) and changing the inflation formula. Perhaps even means-testing Social Security (after one has recouped what one originally paid in).
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Read the rest – How the super-committee can strike a grand bargain
