During a press conference on Wednesday, Speaker of the House John Boehner (R-OH) laid out the GOP’s first proposal for addressing the set of budget issues confronting the next Congress. The so-called “fiscal cliff” is set to occur on January 1st, bringing with it automatic spending spending cuts and tax hikes.
The fiscal cliff was set in motion by the debt ceiling deal of 2010, when Republicans brought the nation to the brink of default due to their intransigence on taxes. At the time, Boehner agreed to a deal that would have increased revenue, though it was quashed by House Republicans.
Now, Boehner is once again suggesting that new revenue should be part of a plan to avoid the fiscal cliff, but only if that revenue coincides with a lowering of tax rates. His pitch is similar to the plan presented by Mitt Romney, which was supposed to boost growth while lowering taxes and making up the revenue from closing loopholes:
For the purposes of forging a bipartisan agreement that begins to solve the problem, we’re willing to accept new revenue under the right conditions. What matters is where the increase revenue comes from and what type of reform comes with it. Does the increased revenue come from government taking a larger share of what the American people earn through higher taxe rates? Or does it come as a byproduct of growing our economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes and lower rates for all? And at the same time we’re reforming the tax code, are we supporting growth by taking concrete steps to put our country’s entitlement programs on a sounder financial footing or are we just going to continue to duck the matter of entitlements, thus the root of the problem?
Like Romney, Boehner cited the Reagan 1986 tax reform — which included lowering rates and closing loopholes — as proof that his vision of boosting growth (and thus raising revenue) through tax reform is possible. But as Reagan administration economist Bruce Bartlett has noted, the 1986 reform didn’t actually result economic growth: “Real gross domestic product growth was about the same after the 1986 act took effect in 1987 as it was before…By the mid-1990s, it was the consensus view of economists that the Tax Reform Act of 1986 had little, if any, impact on growth.” Other studies came to the same conclusion.
It is theoretically possible to close enough loopholes and deductions to raise revenue in a tax reform package. But Boehner’s insistence that tax reform will cause growth that raises significant revenue is a conservative fantasy. This is the same game Republicans, including Boehner, have played since Obama came into office: promising that they’re open to revenue, so long as taxes never go up.