Monday, May 06, 2013

Department of stupid ideas, part 3,267,889,145

The debt ceiling will be expiring again soon, and reportedly Congressional Republicans are once again considering how best they could try to extract compensation for allowing it to increase. The latest idea, apparently, is to require fundamental tax reform as the price for raising the debt ceiling.  (This may not be a stand-alone price, however, but may be demanded in addition to the enactment of massive spending cuts in the middle of a longstanding but still severe unemployment crisis.)

What does "fundamental tax reform" mean here?  I suppose it could mean anything or close to nothing.  But, as I recently discussed here, for several decades it has meant 1986-style tax reform, in which one lowers the rate and broadens the base, with the aim of achieving overall budget neutrality, and in some versions also maintaining distributional neutrality against prior law.

So here's the idea: the U.S. will have to default unless we enact massive tax changes that have no net budgetary impact.  That makes a lot of sense, in relation to the debt limit problem.

I should note that Republicans and Democrats not only don't agree with each other regarding what fundamental tax reform should look like, but they don't even agree with themselves.  Neither side has, or could easily develop, a budget-neutral fundamental tax reform plan that its own people would generally support.  And few on either side have been willing to specify sufficient base-broadening to make such a plan budget-neutral (let alone distribution-neutral, which is probably impossible today for a significant 1986-style package for individuals).

Perhaps the Congressional Republicans should instead demand something that is more feasible, albeit equally unrelated to achieving long-term fiscal sustainability.  For example, they could demand de-extinction through cloning of the woolly mammoth, a goal that may soon be feasible and that - unlike 1986-style tax reform - I fervently support.

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