Aside from the sub-three hour marathon he never ran, the most fanciful notion to come from GOP vice presidential candidate Paul Ryan is his proposal to eliminate capital gains taxes. The idea violates a fundamental principle of tax equity, it mocks his tax reform and deficit-cutting pretensions, and it tends to confirm what the economist Paul Krugman has long been saying—Ryan is a blue-eyed pretty boy, over-hyped, heavy on ideology but light on fiscal chops.
The tax principle that Ryan would flout is called horizontal equity. Simply put, it holds that people who make similar incomes should pay similar taxes. Obviously, with no tax on capital gains, there’s no hope of horizontal equity.
Not that there’s any such equity now. Capital gains (and dividends) are hugely tax-advantaged, with the tax on long-term gains currently at an 80-year low of 15%. If the Bush tax cuts expire on schedule, the capital gains levy is set to rise to 20% in 2013—still less than the tax the middle class pays on wages.
Things might have been otherwise if Ryan had voted differently as a member of President Obama’s bi-partisan fiscal commission, a.k.a. Bowles-Simpson.
The commission, you’ll recall, was charged by the president with developing a plan to attack the federal deficit and put the nation on fiscal terra firma. Led by co-chairs Erskine Bowles and Alan Simpson, the commission delivered as charged. A key ingredient in their plan was horizontal equity: equal taxes on all income, including capital gains and dividends.
Ryan chairs the House Budget Committee and was the acknowledged policy-wonk of the Republicans on the commission. He’s fond of talking the talk on deficit reduction. He declined, however, to walk the walk. He voted against the plan; it was his vote, essentially, that turned the promise of Bowles-Simpson into one more instance of gridlock, one more disillusion.
Coincidentally, close on the heels of Bowles-Simpson came another deficit-reduction plan. This one issued from the Bipartisan Policy Center’s Debt Reduction Task Force, and it was co-chaired by former Federal Reserve official Alice Rivlin and ex-senator Pete Domenici. Its recommendations differed in important respects from Bowles-Simpson, but the plans had this in common: each called for horizontal equity, for equal taxes on all income.
In his acceptance speech at the GOP convention, Ryan slipped in a marathon-like mention of the Bowles-Simpson commission. “He [Obama] created a bipartisan debt commission. They came back with an urgent report. He thanked them, sent them on their way, and then did exactly nothing.”
New York Times columnist David Brooks (unlike his fellow columnist Krugman) invariably takes Ryan at his wonky word. Ryan talks the talk, and Brooks declares it serious. Today, in a column criticizing Obama for his supposed lack of a grand vision, Brooks turned his sights on the Democratic convention. “Personally, I wish Obama would use this convention to embrace Bowles-Simpson. That would lay the foundation for decades of prosperity. It would galvanize a new center-left majority.”
Has Brooks forgotten the Serious Man most responsible for torpedoing Bowles-Simpson? Could be; it’s so easy to forget, like a personal-best marathon time.