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The New Independent Party Blog

This Blog is maintained by Mike Barron, Executive Director and Founder of the New Independent Party. The views expressed here are not necessarily those of the Party, its Board of Governors or its Members.

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House Republican Budget,

Since Mitt Romney, the likely Republican candidate for President, has embraced the House Budget I think it would be a good idea to compare it to the economic plan laid out in the New Independent Party's Platform. This seems especially important since, I think, there is about a 50% chance he will pick Paul Ryan, the head of the House Budget Committee and a principal author of the House Budget as his running mate.

The Budget and National Debt the Big Picture

From a big picture point of view, the House Budget targets long-term total federal tax revenue at about 19% of GDP. This is higher than current levels but lower than the 20% target established in the New Independent Party. To put these numbers in context Ron Paul argues for taxes and spending at about 15% of GDP. It appears that the Democrats support a level of taxation of about 23% of GDP, but I have not seen a specific number from them.

Another big picture observation is that the House Budget anticipates a long term level of spending below this 19% level so that eventually the national debt is retired. The New Independent Party supports a spending level at around 20% of GDP so that, after a brief period of deficit and debt reduction, the U.S. maintains a lower but positive level of national debt. The Party's Platform does not explicitly identify a long term target Debt to GDP ratio. I am guessing that something greater than 25% but less than 50% would be sustainable. Current public policy would result in a level of national debt many times the annual GDP of the U.S. The current Debt to GDP ratio is around 70%.

The Democrats appear to agree that the current public policy path on the budget is unsustainable, but they want to place the primary burden of reducing it on higher taxes, matched with a more modest level of spending reductions. It is not clear what long-term targets for spending, taxation and debt the Democrats would support, but I am guessing they are all substantially higher than both the House Budget and those proposed in the New Independent Party's Platform. On this issue we lean in the direction of the Republicans but don't go as far as they do.

Marginal Tax Rates

The House Budget proposes lowering the top marginal personal and corporate rates to 25%. The New Independent Party proposes a top personal rate of 30% and a top corporate rate of 20%.

I believe that the President has proposed a lower corporate tax rate, I think it is also 25%. The quid pro quo for lower corporate income tax rates is higher personal marginal tax rates for high income individuals.

All sides, including the New Independent Party. appear to support reducing deductions, exemptions, and credits to offset the loss of revenue from lower marginal rates. Not surprisingly both Republicans and Democrats are silent, for the most part, about which of these "loop holes" they would chose to close.

The Democrats are on record, I believe, that the principal objective of higher personal marginal tax rates is not revenue but "fairness." It is hard to say objectively what is "fair" but it should be remembered that corporate income is taxed twice: once directly as corporate income and then again through the taxation of dividends or capital gains. So when the President talks about the tax that upper income people, like Warren Buffet, pay he should reflect the combined effect of both tax rates. This puts the top federal marginal rate on combined corporate income, dividends and capital gains at close to 60%. This is well above the tax rate that the average middle class person pays. No one disputes that this is the appropriate way to look at this issue (the Democrats as simply silent on the question), but when stated this way it does not make very good populist politics.

Other Issues

I will address the Republican Budget's position on other issues like Social Security, Medicare, and Medicaid. in future blogs.

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