The GOP’s stealth plan to raise taxes

Guest post by Andrew Murphy

Now that that champagne hangovers are going away and the Davidoff cigar smoke is finally dissipating, a specter is haunting those who voted Republicans on the 2nd: the specter of higher taxes. Not by that _______ (the reader can fill in their favorite pejorative) Nancy Pelosi or President Obama but by Republican Congressmen Paul Ryan of Wisconsin. Ryan is on track to become the new chairman of the House Budget Committee. If that is the case, he will be in a serious position to advocate and get Republicans in the House to support his alternative budget plan (aka the Ryan Plan).

Most voters have no clue what the Ryan Plan is, which is not much of a surprise, The Republican National Committee did not publicize it and the Tea Party movement did not embrace it. Whether or not one agrees with it, the Ryan Plan is the only intellectually honest proposal coming from Republicans. While most Republicans on the election trail refused to mention a single federal agency they would be willing to abolish (something libertarians noticed), or tried to claim our fiscal house can be put in order as easily as abolishing ObamaCare or earmarks, or perhaps freezing federal spending for a year, Paul Ryan understands that entitlement programs and tax exemptions are where the “real money” is. But now that the election is over, Republicans are taking Ryan’s plan seriously. On election night, Senator Jim DeMint told CNN that if the Ryan Plan was in place now, we as a country would be moving in the right direction.

The plan calls for:

a) Providing tax credits for those to purchase health insurance ($2300 for individuals and $5700 for families). However in order to pay for this, the plan ends the tax exclusion people get for health insurance currently. This means that employees who get health benefits from their employer would now have that treated as cash income. If those benefits go above the tax credit, this means a tax increase for many Americans. There is also no mention in the plan of health care inflation grading, so if those tax credits are not indexed to account for a rise in health care inflation, this could mean a serious tax increase as time goes by. Likewise, with the tax benefit gone, many employers would probably drop their group health care benefits altogether.

b) Replacing the current corporate tax and estate tax with a 8.5% value added tax. While certainly a VAT tax would be something worth exploring, the reality is as structured under the plan, it would be a regressive tax, hitting middle class and lower income Americans hardest, as they spend a far larger percentage of their income on goods and services then do those in higher tax brackets. Blue-collar Republicans should take note; they will see their taxes go up, not down under this plan.

c) Turning Medicare into a federal voucher system for those under 55. One of the major reasons the Republicans were able to do so well election night was because of a swing in seniors voting their way. But under the plan, once you hit 65, you will have to purchase your health insurance in the private health care market much like Medicare Supplement plans. The voucher is worth $11,000, slightly higher for those with lower incomes. If seniors were gun shy about Obama messing with their Medicare, what will they think once it is known that Republicans in Congress plan on privatizing Medicare?

The rest of the plan can be read here. One of the ironies of this election cycle is that many voters voted Republican to stop tax increases and to keep Obama from cutting Medicare; yet Republicans plan to put these things on the table for the next session of Congress.

The Ryan Plan is an audacious plan and an honest one which would balance the budget within a decade. It will be interesting to see how many Republicans are going to put their money where their mouth has been about cutting spending and restoring fiscal sanity to Washington. Congressmen Ryan has given them that blueprint, but it will require cutting programs and tax benefits that people like and raising taxes. Personally I am not in favor of the Ryan Plan but at least there is one Republican in Washington that understands what Milton Friedman used to say: “There is no such thing as a free lunch.” If you want government services you have to pay for them.