Monday, February 8, 2010

A Fiscally Conserative Attempt at Fiscal Reform

Ross Douthat of the New York Times profiled the plan floated by Rep. Paul Ryan

[T]he size of Ryan’s proposed voucher could be increased, to accommodate political realities, without doing violence to his overall vision of what government should be doing, and where it could be cut. And that vision is more appealing, I think, than many liberals are giving it credit for. What Ryan is proposing, ultimately, is a comprehensive blueprint for a conservative welfare state.

A simplified tax code, consisting of a two-bracket income tax with a large standard deduction and a business consumption tax, would pay for a means-tested safety net, and a system of tax credits, risk pools and low-income subsidies would underwrite a free (or, well, somewhat freer) market in health care. In other words, Ryan would balance our books by shifting away from programs that shuffle money around within the middle and upper-middle classes — taking tax dollars with one hand and giving health-insurance deductions, college-tuition credits, home-mortgage deductions, Social Security checks and so forth with the other — and toward programs that tax the majority of Americans to fund means-tested support for the old, the sick, and the poor.

It certainly doesn't make much sense, when you think about it, to have such high taxes and then offset those taxes with various and sundry deductions. Eliminating those deductions and just taxing in a fair and progressive manner, while pairing it up with a broad-based consumption tax (not just a business consumption tax, as Ryan has suggested), would raise enough money to put a serious dent in the deficit and start to attack our long-term debt. Plus, I think it would keep interest rates very low, since the Fed's borrowing would be seen as more short term.

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