Instead, they should counter the president’s smallness by going big. Rather than go to their martyrdom as ideological purists, they should open the door to tax increases — but only if every $1 in new taxes is applied to deficit reduction and is matched by at least $4 in real spending cuts, including entitlement reform.
Why the 4-to-1 ratio? Precedent: in a study of fiscal reforms by 21 developed countries between 1970 and 2007, the American Enterprise Institute, a conservative research group, found that, on average, “failed attempts to close budget gaps relied 53 percent on tax increases and 47 percent on spending cuts.”
Successful formulas, on the other hand, combined 85 percent in spending cuts with 15 percent in tax hikes. The president has proposed a much lower ratio, closer to 60 percent in spending cuts and 40 percent in tax hikes, but at least the two sides would be on the same page.
Moreover, tax revenues do not need to come through higher, growth-deterring tax rates. The president’s bipartisan debt commission has already developed proposals to reduce or scrap tax breaks in a way that would both lower tax rates and generate $1 trillion in revenues over 10 years. Under one scenario, all tax breaks would be zeroed out except the child tax credit and the earned-income tax credit; meanwhile, three new, lower income tax rates of 9 percent, 15 percent and 24 percent would be established.
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