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Ryan's Plan Doesn't Deliver

Ruth Marcus on

WASHINGTON -- Lower the rates, broaden the base. Everyone agrees that such tax reform is a good idea, and the first half of that equation is simple enough. Pick a number, any number.

Paul Ryan's numbers, as it happens, are 10 and 25. The House Budget Committee chairman's new framework proposes collapsing the current six tax brackets (top rate, 35 percent) into two, with rates of 10 percent and 25 percent. Ryan would also lower the corporate tax from 35 percent to 25 percent -- all, he says, without losing any revenue.

"We're saying, get rid of the tax shelters, get rid of the loopholes, lower tax rates for everybody," Ryan said in unveiling his plan.

Sounds great, right? But the second-half of the tax reform equation is the tricky part, which helps explain why the appealing precision of Ryan's tax brackets is not matched by any detail about what loopholes he would close.

Or, as Ryan put it, "As far as the tax rates are concerned, that is up to Ways and Means to decide which tax expenditures stay, which go, and what are the bend points within the income stream." Translation: we're only talking dessert now. Spinach comes later.

"Tax expenditures" is the wonky term for trillions in hidden spending, in the form of preferences and deductions, embedded in the tax code and badly in need of clearing out. Except that your special interest loophole is my important social program. My base-broadening gores your ox.

 

And Ryan's nifty-sounding new tax brackets would require him to come up with a jaw-dropping $4.6 trillion in loophole-closing over the 10-year period in order to meet his goal of breaking even, according to calculations by the nonpartisan Tax Policy Center.

On paper, in theory, that number is achievable. The Congressional Budget Office, examining the major tax expenditures -- such as deductions for charitable contributions or home mortgage interest -- found that they added up to some $12 trillion over 10 years. There are other, smaller tax expenditures studded through the IRS code.

Yet each one of these tax expenditures has its ardent defenders -- and an accompanying arsenal of lobbyists. So in the real world it would be all but impossible to come up with anything near the $4.6 trillion that Ryan would need to avoid losing revenue.

Consider these numbers, derived from the CBO:

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Copyright 2012 Washington Post Writers Group

 

 

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