The Paul Ryan budget plan (the "Path to Prosperity") was released this morning. ATR will be looking at all the spending elements of this plan, but the first concern is always for taxpayers.
Put simply, the FY 2012 House GOP budget is a home run for taxpayers. Rather than raise taxes (as some other plans propose), the Ryan budget holds federal tax revenues at their historical levels (18-19 percent of GDP). While retaining this level, it calls for fundamental tax reform which lowers the top personal and corporate rates from 35 to 25 percent.
The "Path to Prosperity" says it all right here (page 54):
This budget, by lowering tax rates and broadening the tax base, follows the same principles that guided the tax proposals contained in the President’s Fiscal Commission. But rather than allow government’s share of the economy to rise to 21 percent, as the Commission’s proposals would allow, this budget includes real spending restraint that enables government’s share of the economy to remain below its historical average of 19 percent. This is important, not because 19 percent is a magic number, but because Washington should not solve its spending problems by taking even more money from taxpayers. American families have had to cut their own budgets in the last few years, and it is time for Washington to do the same. By returning government to its proper roles, this budget brings spending in line with taxes – not the other way around.
Stopping Tax Increases on Families and Small Businesses
First, let's look at the level. Keeping taxes at 18-19 percent of GDP is what Americans have been paying for all of living memory. Raising this level would result in record and sustained tax hikes on families and small business owners. It should be the job of any budget to bring federal spending DOWN to the tax level, not bring the tax level UP to whatever level of spending Washington wants.
Three plans that fail in this regard are the Obama budget, the Simpson-Bowles commission report, and the "Gang of Six" rumors. All three of these agree on one thing: taxes are too low, and need to rise. All call for a tax level closer to 21 percent of GDP in order to pay for the massive spending explosion of the Bush-Obama years. This sustained level of taxation would be unprecedented in American history, and would almost certainly result in lower wages and higher unemployment.
Tax Reform without Raising Net Taxes
The "Path to Prosperity" stops all the tax increases baked into the cake over the next decade. All 21 new and higher taxes in Obamacare are repealed. Rather than seeing higher tax rates after 2012, the top rate will fall to 25 percent. The details will be fleshed out by House Ways and Means Committee Chairman Dave Camp (R-Mich.), but this outline for tax reform is powerful. When combined with a revenue target no higher than what Americans have been used to for the last 60 years, it's clear that this is the way to go.
To compare this reform plan with the three alternative plans described above:
- The Obama budget calls for all of the Obamacare tax hikes to take effect, and envisions the top tax rate rising to 39.6 percent. The corporate rate would remain at the world-highest 40 percent (when including states)
- The Simpson-Bowles commission called for all the Obamacare tax hikes to take effect, and only lowers the top rate to 28 percent (24 percent for corporations) while hiking net taxes overall
- The "Gang of Six" will likely mirror the Simpson-Bowles commission
The Ryan-House GOP "Path to Prosperity" is the model for true fiscal conservatism.