The House on Wednesday began debate on a variety of budget plans, including House Budget Committee Chairman Paul Ryan's, which cuts $5.3 trillion from government spending (including $810 billion from Medicaid) and cuts taxes by $2 trillion by lowering the top marginal tax rate to 25%.
Republican Presidential hopeful Mitt Romney has expressed support for the broad outlines of Rep. Ryan's plan. Romney wants to cut the top marginal tax rate to 20%, repeal the estate tax and Alternative Minimum Tax, cut government spending and reform entitlement programs.
"What both Rep. Ryan's and Gov. Romney's plans have in common is the notion of tax reform: broaden base and lower the rates, both corporate and individual," says Glenn Hubbard, Dean of Columbia Business School and
an economic adviser to Romney. "[Both] reduce growth in government spending, particularly in entitlement spending the two plans are very similar. If we don't do all that we're not going to be able to solve the fiscal crisis the country faces."
Like nearly all Republicans, Hubbard is adamantly opposed to President Obama budget, which calls for raising the top marginal tax rate to 39.6% from 35% today.
Hubbard, one of the architects of the so-called Bush Tax Cuts, says raising taxes on the wealthiest Americans is the wrong prescription, despite multiple polls showing support for it by the majority of Americans.
"What we should definitely not be doing is what the President proposed - raising marginal tax rates on higher income Americans, particularly business owners," Hubbard says. "We need to cut marginal rates for every American, it's not about the wealthiest and non-wealthy. We need to encourage work, encouraging saving, encourage entrepreneurship."
In addition, Hubbard says Obama's math just doesn't add up. The so-called Buffett Rule championed by the President, which would tax millionaires at a minimum rate of 30%, would only raise about $40 billion, a tiny drop in the nation's trillion-plus deficit.
Third Way Gets Left Behind
To listen to most politicians and pundits, the 2012 election is shaping up to be a election of stark choices between diametrically opposed viewpoints. To wit, House Speaker John Boehner called the Ryan plan "the only responsible budget in town" ahead of Wednesday's hearings.
But there's a third option which has some bipartisan support and actually reflects what polls say the majority of Americans want from Congress.
Based on the Simpson-Bowles plan, Reps. Steve LaTourette (R., Ohio) and Jim Cooper (D., Tenn.) proposed a plan to lower marginal tax rates but also eliminate or dramatically limit tax breaks, which typically benefit the wealthiest Americans most.
The LaTourette-Cooper plan would lower the deficit by $1 trillion in over 10 years via tax reform, as well as set limits on the long-term growth of federal health-care spending and seek to cut $300 billion in federal programs, such as agriculture and federal retirement benefits.
"The proposal would direct broader changes in Social Security and other entitlement programs than many Democrats have supported and larger increases in tax revenue than many Republicans have backed," according to The Wall Street Journal.
Sounds like a compromise, which is what voters say they want. The plan also has some bipartisan support -- at least 7 Republicans and 3 Democrats supported the plan, according to The WSJ -- which is another thing polls show Americans want.
"I don't agree with everything in Bowles-Simpson but it strikes me as exactly the right place to start," says Hubbard, who agrees both parties need to find common ground before the end of the year, when automatic spending cuts kick in and both the Bush tax cuts and Obama's temporary payroll tax cut are due to sunset.
"This isn't just political rhetoric: The two sides really have to come together," Hubbard says. "We don't know who the President is in 2013 or, which party controls the Congress. It's clear this President, if he's reelected, would have to change his style and actually produce a compromise tax plan and he'll have to do that next year."
Any hopes for compromise were dashed Wednesday, when the LaTourette-Cooper plan was "crushed," as Politico put it.
"You know you have a good deal when the left and right are beating the snot out of you," LaTourette said on the House floor. "The mood in the country is throw the bums out … Americans are screaming for us to take off our red jerseys on this side, to take off the blue jerseys on that side, and put on the red white and blue jerseys of the United States of America."
Voters may be screaming for compromise -- and teamwork -- but the partisans in Washington keep turning a deaf ear.
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