House Budget Committee Chairman Paul Ryan, R-Wis., talked about how tax policies need to emphasize economic growth during a speech Tuesday, in which he also took aim at President Obama’s budget.
Ryan’s budget passed the House in late March, although it is not expected to make much headway in the Democratic-controlled Senate (see House Passes Paul Ryan Budget, Consolidating Tax Brackets).
Speaking at the New York Historical Society at a tax policy conference sponsored by the George W. Bush Institute, he said he agreed with former President Bush on the need for a strategy to grow the economy 4 percent. Addressing Bush, who was seated in the front row, he said, “Mr. President, thank you for your leadership, and thank you for pointing out the obvious, which is we need to come up with a growth strategy, a 4 percent solution,” he said.
“What do we do to get our train back on the right tracks, and get away from austerity?” he asked the audience. “Prosperity is what the American dream is all about, limitless opportunity so you can make the most of your life. Your rights come from god and nature, not from government, and you can do whatever you want to do with your life to be happy, however you define happiness for yourself.”
Ryan described how he had descended from Irish immigrants who came to America fleeing the potato famine. They moved to Boston and worked for railroads until they had enough money to start their own farm in Wisconsin.
He said the U.S. needs to avoid the mistakes of Europe in imposing austerity measures to combat the sovereign debt crisis. “It means cranking up your taxes, which slows down your economy and makes it harder for young people to have careers and build a life for themselves,” he said.
“I’ve argued that President Obama is bringing us toward this government-centered society,” said Ryan. “He is putting his trust in government, and this is a trust that puts us down the path of debt and decline.”
He did give Obama credit for at least submitting a budget, and contrasted that with the Senate, which has not passed a budget for 2010, 2011 and is now likely not to pass one for 2012. “Go figure,” he said. “You’re elected to represent the people of your district or your state, and with a debt crisis on the horizon, meaning you need to pass a budget to fix that, and they’ve decided for over a thousand days not to do anything about it. Where I come from, that’s a firing offense.”
Ryan contended that Obama’s budget would hurt economic growth. “It makes our growth situation worse,” he said.
He argued that the Obama budget does not provide the confidence and certainty in the federal government’s leadership that businesses need to take risks.
“Until you have a plan like this in place, you will not be able to reap a growth dividend,” said Ryan. “Another reason why I think the President’s budget is bad for growth: cronyism. Now, both parties have been subject to what I call crony capitalism. For us, we got confused. We thought being pro-business was being pro-market when in fact it was being pro-incumbent business, and it ended up erecting barriers to entry against would-be competitors. So it’s easier for us to go back to our core principles, which is being pro-market. It’s a little harder for the left to do this, I think, because the President, in my opinion, subscribes to the notion that they just know better in Washington, that Congressmen pass a lot of these vague laws and then we have a permanent class of technocrats and bureaucrats who can better micro-manage society and our economy, who can do a better job of subsidizing and picking winners and losers, whether it’s through regulations, whether it’s creating too big to fail banks through Dodd-Frank, whether it’s the Tax Code, or Solyndra, or the regulatory state, they believe in a process which ends up putting entrepreneurial, small business, risk-taking capitalism aside and replacing it with connected capitalism, with crony capitalism, with big government capitalism. That replaces the rule of law with the rule of bureaucrats, with the rule of the connected. That’s one of my biggest criticisms of this budget.”
Ryan said that Obama’s budget was anti-growth in the matter of tax reform. “In January, he is proposing that the top effective marginal income tax rate goes up to 44.8 percent,” he said. “The Canadians just dropped their business income tax to 15 percent. Nine out of 10 businesses in Wisconsin file their taxes as individuals. Eight out of 10 businesses in all of America aren’t corporations. They’re businesses that file their taxes as individuals, like Subchapter S corporations and partnerships and LLCs. So what we’re basically saying to them is, if you get successful, if you buy four acres out in the office park in Elkhart, Wisconsin, you start with five employees and you get to 25 and then 250 employees, we used to call that the American dream. Now you’re part of the evil rich. Now you’re going to be hit with effectively about a 45 percent tax rate. Throw our state income tax on top of that and you’re over 50 percent. How on earth are we going to be able to compete with the likes of the Canadians, who are taxing themselves at 15 percent, or the Irish at 12 and a half percent, or the Japanese who are lower than us now, or the Chinese? We’ve got to remember we’re in a global economy, and if we tax our job creators, if we tax these businesses where 65 percent of the net new jobs come from and more than half of Americans work for today, if we tax them at such higher rates than our foreign competitors are taxing their companies, we lose, they win. So to me, this is a system that is wrecked for posterity. Higher tax rates, more complexity, more loopholes is what the President's budget is proposing.”
Ryan noted that his Republican-backed budget proposes to have just two tax brackets of 10 percent and 25 percent. “We proposed to do fundamental tax reform,” he said. “Of all the things you can do in this country to help get people back to work and back on the path to prosperity, we have to acknowledge the fact that basically the income tax system blows up in January. I was on the Ways and Means Committee when President Bush signed those two tax bills into law in 2001 and 2003. All tax laws must originate in the House, in the House Ways and Means Committee, and then go to the Senate. When that bill left the House, it was permanent. It was never intended to be a temporary tax rate reduction.”
He blamed former Senate Majority Leader Tom Daschle and arcane Senate rules and time limits for forcing the tax rates to become temporary.
“Now we are where we are,” said Ryan. “We have a cliff coming at the end of the year. What we’re saying is it actually provides a great opportunity. The [Tax] Code’s effectively blowing up, so let’s reform it. Let’s take a page out of Steve Forbes’ playbook and go back with a very common, simple better system. Lower the rates and broaden the base.”
He noted that many Democrats agree with the idea, including several on the Simpson-Bowles deficit commission.
“Take away the tax shelters, limit the loopholes, lower everybody’s tax rates for all so that we can be entrepreneurial, so that we can help those small businesses succeed and compete in a global economy,” said Ryan. “More specifically with a 10 percent bracket and a 25 percent bracket for individuals, and bring that corporate rate back down to 25 percent. And get rid of this clumsy, outdated, anti-internationally competitive worldwide tax system and go to a territorial system. It simply is a system where we don’t push capital away from America. We make America a place where you want to keep your capital. We make it a place where you want your headquarters to be located.”