George Will’s column, which Scott discusses below, stops short of arguing that we should go over the “fiscal cliff” in order to fix the tax code. Ending the tax credit that subsidizes wind power, for example, “is not quite a sufficient reason to go over the ‘fiscal cliff,’” Will writes, “but would be a consolation for doing so.” Will urges that arguments about “the propoer scope and actual competence of government should not be truncated until the cliff gets closer.”
Tony Fratto, a deputy press secretary to President George W. Bush, goes further. He points to the “benefits to allowing my favored Bush income tax rates to expire and return to Clinton-era tax rates for everyone,” namely that such a reversion would make it easier eventually to accomplish major tax reform. Major tax reform might still be a long-shot in this scenario, but according to Fratto, the Obama plan of only raising the top two rates on the wealthiest Americans kills any chance of income tax reform.
James Pethokoukis is skeptical about this option. He asks:
1. What if Democrats decide to keep the money with no tax reform? All else equal, letting the Bush tax cuts expire would, according to the CBO, give government a gusher of money, an additional $5.1 trillion over a decade.Tax revenue as a share of GDP would average 20.6% from 2013-2012 vs.18.1% if we keep the Bush tax cuts (or about the post-WWII average).
2. With higher tax revenues, wouldn’t any near- or medium-term pressure to do entitlement reform evaporate? While annual deficits might be lower, the Medicare-Medicaid-Social Security debt bomb would still be ticking, and the longer we wait to act, the more dramatic reform will need to be.
3. If you are looking for middle-class, tax-reform sweetener, what about cutting payroll and investment taxes?
Good questions. I think I prefer “brinkmanship” to actually going over the cliff for the purpose of facilitating tax reform.