By Dennis Hastert and Dick Gephardt
The heavy posturing in Washington over fiscal policy makes it difficult to focus on the stark reality presented by the Congressional Budget Office. Federal budget revenues in the US have fallen from 18.5 per cent of gross domestic product in 2007 to a projected 15.8 per cent in 2012, while federal spending levels have risen from 19.7 per cent to a projected 23.4 per cent, according to the CBO.
Much of this growing gap can be attributed to the economic conditions that have existed during this period. However, it is clear that a return to normal growth rates alone will not fix the US’s structural flaws.
We were active participants the last time the federal budget was balanced (more than a decade ago, in 2001) and maintained a bipartisan agreement to use any surplus to pay down federal debt. Over a four-year period, budget surpluses totalled $559bn and debt held by the public was reduced from 46 per cent to 33 per cent of GDP.
We believe comprehensive changes must now occur to get us heading in that direction again. As part of this effort, Washington must have a thorough debate on fundamental tax reform. We are unaware of a single American that is satisfied with the existing tax structure. The current haphazard pattern of extending expiring tax provisions, delaying ominous provisions such as the alternative minimum tax and adding new complexity almost every year, simply cannot be sustained.
Many on Capitol Hill are dedicated to making tax reform work. There have been large amounts of time and effort devoted to this area and there is no shortage of ideas. However, we share concerns that the process some are pursuing is backwards – and this will keep tax reform from ever getting off the ground. The substance cannot be implemented unless the process is set straight.
When the debate on the last major overhaul of the tax code took place in 1986, many predicted that it would never succeed. Those on the left wanted to eliminate many prominent tax breaks, while those on the right wanted lower rates. The process only began to gain traction when both sides set aside their top priorities and focused first on making sure the numbers added up. We need a similar process today.
First, we need a bipartisan dialogue on the level of revenues to be raised during periods of normal economic growth. In 1986, both sides agreed to a revenue neutral approach, which generated revenues just above 18 per cent of GDP. The Obama administration’s budget calls for revenues at 19 per cent within the next few years. The budget passed by the Republican-led House of Representatives calls for revenues at 19 per cent of GDP by 2030. This range is roughly where revenues were the last time the budget was balanced. Both an agreed revenue target and timeline are necessary if we are to have reform.
Second, Congress must engage in the difficult work of eliminating or reducing tax expenditures: the sum total of all tax credits, deductions and other breaks embedded in our tax code. Before the 1986 reforms, the value of tax expenditures was $598bn. By 1988, this number had been reduced to $433bn. Today, the US Treasury estimates that tax breaks total $1.1tn. In 1986, there were 115 separately identified tax breaks in our tax code according to the same source; today, there are roughly 250. There is a lot of work to be done to lower this number and broaden the base.
Third, but only after a framework has been set, Congress should debate the rates themselves. In 1986, as a result of the difficult decisions made on tax expenditures, the top individual rate was reduced from 50 per cent to 28 per cent. The number of tax brackets was reduced from 15 to four. The design of our tax rate structure is both a policy debate and a mathematics equation. We cannot address one without the other. And we cannot solve the equation until we have answered the first two questions about revenue levels and tax expenditures.
In short: set revenue targets; broaden the base; lower the rates; reduce the deficit; grow the economy.
It is a process that has worked in the past. It can work again in a manner that has economic benefits across the political spectrum.
The writers are respectively a former Republican speaker and a former Democratic majority leader of the US House of Representatives
The heavy posturing in Washington over fiscal policy makes it difficult to focus on the stark reality presented by the Congressional Budget Office.
Breaux and Gephardt. Gerard and Maloney. Berman and Podesta. According to First Street, these were among the most powerful lobbyists in Washington this year.
...Tom O'Donnell, Gephardt Government Affairs Group. O'Donnell and his former Capitol Hill boss, ex-House Democratic Leader Richard Gephardt (Mo.), have done well since joining forces...
Gephardt's former chief of staff Tom O'Donnell talks to National Journal about post-debt ceiling debate prospects for bipartisanship.
Video: How Will FAA Crisis Affect You?
Debt-limit votes have been called the "burden of the majority" — an unpleasant chore that needed to be done by whichever party happens to be in power.
Christina Hamilton, Former Chief of Staff to House Appropriations Committee Chairman Dave Obey, will join the firm. As a Senior Vice President with the firm, Christina will support the firm’s health, energy, transportation, trade and appropriations clients.
Life on the outside after more than 41 years in Congress hasn’t been much different for former House Appropriations Chairman David Obey, D-Wis. — or so it seems.
Dick Gephardt participated in Vice President Joe Biden, Dr. Jill Biden and Secretary of State Hillary Clinton’s welcoming lunch honoring Her Excellency Dr. Angela Merkel, Chancellor of the Federal Republic of Germany.
Gephardt Government Affairs President & CEO Dick Gephardt announced that Former House Appropriations Committee Chairman Dave Obey will join the firm.