More on Taxes

My Monday column on taxes met, shall we say, with a certain amount of skepticism. I argued that Obama needs to break his promise on taxes, and raise them once the recovery is solid for middle-class Americans as well as for the rich. Many people have written comments or sent me emails that say, not always in polite terms, "What about spending?"

Fair point. Preoccupied with the debate over extending the Bush tax cuts, and confined to 900 words, I neglected to mention spending cuts. That was wrong. People who don't read everything I write -- there must be some -- will be unaware that I see spending cuts as necessary too. I think both will be needed to get the long-term deficit back under control. Entitlement reform is indispensable.

Curbing spending on Social Security is relatively easy -- technically, I mean, not politically. The retirement age should be raised. Getting a grip on long-term Medicare outlays, which is the real core of the problem, is much more difficult. I'm not optimistic that the Democrats' health-care reform, which I support for other reasons, is going to drive down costs. More likely the opposite.

I agree that spending should be part of the solution; indeed, must be part of the solution. The current-policy path of Medicare, Medicaid, and Social Security taken together is such that higher taxes by themselves will not suffice -- even if, as I advocated in the column, the base of the income tax is broadened and new taxes (such as a carbon tax or a VAT) are added in. The more diversified  the remedies, the less drastic, hence less painful, individual tax hikes and spending cuts will need to be.

I can't help noticing, though, that most conservatives deny that any tax increases are needed while suggesting few if any specific spending cuts. "The government is spending too much," they say. No doubt. "Cut waste." Yes, that would be good. But I don't see the Republican party promising to raise the retirement age to curb Social Security spending, for instance. I don't see them promising to roll back Medicare outlays. The party's main line of attack on health-care reform was to say that the policy would cut Medicare, and that this was unacceptable. If you exclude tax increases and cuts in Social Security and Medicare, you aren't going to get very far on fiscal control.

The charge that conservatives have no ideas on fiscal reform certainly does not apply to Paul Ryan. His Roadmap for America is nothing if not radical. It proposes a complete overhaul-in effect, the dismantling-of Social Security, Medicare, and Medicaid. On the tax side, it slashes taxes on the wealthy and proposes a broad-based consumption tax.

Ryan is a good thing, and his Roadmap is very interesting. He is grappling with specific proposals, and his plan for long-term entitlement reform deserves a serious look. Note, though, that on plausible assumptions, it is not a deficit-reducing proposal: revenues would fall even more than spending.

More to the point, the party is not backing Ryan's proposals. If conservatives who say, "Don't raise taxes, cut spending," were willing to contemplate Ryan's approach to entitlement reform, well and good. Few are. The party as a whole is scared of it. Republicans in Congress understand how difficult it would be to get the country behind it. (If George Bush's plan for Social Security privatisation, timid by comparison, got shot down, what hope is there for Ryan's ideas?) Right now the party's position is to reject every meaningful spending cut and any and all tax increases. That is not fiscal responsibility. It is complete nonsense.

One must keep an open mind. Perhaps there is a way to balance the long-term budget with spending cuts alone. Let's hear some details.