Judd Gregg: Throw the Hail Mary on Taxes

Judd Gregg a former Republican senator from New Hampshire, served as chairman of the Senate Budget Committee from 2005 to 2007 and ranking member from 2007 to 2011. He recently wrote an op-ed featured in The Hill. It is reposted here.

Tax reform is taking center stage.

It is the gravamen of success for this Congress and president.

If tax reform is not accomplished, then the whole rationale for the disruption that this administration has brought forth — and for a Republican Congress more generally — will be significantly muted.

Yes, there are other issues that can be pursued. There is regulatory relief. There may even be some level of alteration to healthcare — but healthcare improvement and change is a never-ending story.

Tax reform, however, is where the rubber meets the road. It is the center of Republican market-oriented politics and purpose.  

Get tax reform right — a perfectly feasible goal — and the dynamics of growth will be given a giant kick in the pants.

With a strong tax bill, the economy will accelerate, good jobs will be created and the nation will feel good about itself again.

I had the good fortune to be on the House Ways and Means Committee when the last true tax restructuring occurred under President Reagan, and with Rep. Dan Rostenkowski’s (D-Ill.) leadership.

I also worked for two years with Sen. Ron Wyden (D-Ore.), a dynamo of a senator, to produce a major overhaul of the tax code based on the Reagan-Rostenkowski model.

Our bill became the template for the Simpson-Bowles proposal of 2010, which was essentially the Wyden bill on steroids.

All these efforts were bipartisan and built on the idea that you reduce deductions and exemptions for high-income individuals in exchange for reducing rates.

Today, unfortunately, bipartisanship has been left on the cutting room floor by the forces of the extremes that so disproportionately influence both parties’ congressional agendas.  

The Democratic caucus under the tutelage of hardline figures such as Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) has opted for non-participation in all things substantive regarding governing.

The Republican House conference is held hostage by a small collection of non-compromisers who ironically call themselves the Freedom Caucus.

Thus major tax reform, which historically has moved forward with cross-aisle participation and support, is now in partisan lockdown.

This Republican government — though it may be a bit premature to call it a “government” yet, in light of its atrocious start — is left alone to push into the arena of fixing our tax laws. This will be done using the procedural vehicle of reconciliation.

No Democrat will volunteer as a participant. They all seem to have been cowed by their party’s shouters.

This means the question of what approach to take to raise revenue is left entirely to the GOP.

The House bill departs from the historic norm with the border adjustment language. It drives down rates by shifting the tax burden to consumption versus income. Unfortunately, the path it follows disproportionately impacts one slice of the economy: Importers.

The administration proposal, to the extent it can be gleaned from the brief memo released, does not reduce rates a great deal at all, settling on a 35 percent top individual rate.

Reading between the lines of the memo, it seems that the administration has decided to try and avoid, at all costs, having its proposal denigrated as a tax cut for the wealthy.

Of course, even if it raised taxes on the wealthy, Warren and Sanders, along with their acolytes and press allies, would say it was a tax cut for the wealthy. It is foolish to design a plan intended to blunt their critique, since there is no possibility of them sheathing their rhetorical swords whatever the substance of the matter.

The Senate, of course, is still trying to work things out.

Since there will be no Democrats participating — and since whatever is done will be characterized by liberals as benefiting the wealthy in any event — why not throw the long ball?

The House set out on this course but they only went to the 30-yard line. The administration decided to run on third and ten.

The Senate should take the House ideas and put them on steroids. It should fundamentally change the paradigm of how we raise revenue in this country.

Undertake an approach that is fairer, more balanced and more dramatic then the House concept but also accomplishes the revenue growth that is critical to paying for our entitlement-based government.

Tax all personal income over $150,000 at 10 percent (no deductions or exemptions) and all income over $200,000 at fifteen percent. This is a pure two-step, high-income flat tax.

At the same time, institute a value added tax of two percent, exempting food and staples. Remember that wealthier Americans are the consumers of expensive purchases so it still remains a progressive tax.

This approach would dramatically increase the incentives for economic growth and would fund the government, while not aggravating our national debt issues.

Make the rates subject to a 67-vote point of order to change them.

This is necessary because history has shown that when government is given a new engine of revenue in exchange for a major adjustment of another source of revenue, over time rates go up for both. Government inherently moves left and is avaricious.

It is time, and the opportunity is there, for Republicans to throw the Hail Mary.

The country will benefit dramatically from the growth this approach will engender.

And Republicans can legitimately claim that they came, they saw and they did something.

"My Views" are works published by members or staff of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.