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The 1986 Economic Strategy

Republicans made headlines Thursday when House Majority Leader Rep. Eric Cantor (R-Va.) and Senate Minority Whip Sen. Jon Kyl (R-Ariz.) “walked out” on bipartisan talks led by Vice President Joe Biden to reach a deal to raise the U.S. debt ceiling and avoid a first-ever default on U.S. debt obligations.

The red line for both parties over these debt ceiling talks is taxes. As I mentioned in a previous column, while Republicans have been seeking $2.5 trillion in spending cuts as well as entitlement reforms in any deal to raise the debt ceiling, Democrats had repeatedly insisted they would not agree to drastic cuts or even touch entitlements without raising taxes. Republicans have resolutely opposed raising taxes.

But while the media and extremists on both sides of the spectrum would have you believe there’s no way around this without one side caving in, I propose a third option. There is a bipartisan solution that would solve the tax problem and could get a deal done on this if only both sides are willing to reach a compromise.

That compromise is to eliminate all tax subsidies and to close tax loopholes without raising tax rates on wage earners or employers.

If you think this is a radical idea that is too crazy for Washington, you’re wrong. It’s been done before.

The 1986 Tax Reform Act did just that. It eliminated tax subsidies, simplified the tax code, and closed tax shelters aboard while reducing tax rates for everyone and broadening the tax base. It led to 20 years of prosperity for America and if it worked back then, I don’t see why it couldn’t work now. The legislation was also a bipartisan effort that was crafted, signed, and passed by a Tip O’Neill-led Democrat Congress and Republican President Ronald Reagan.

Signs show there is room among both parties that could allow a deal like this to be reached. In the Senate last week, 33 Republicans voted to abolish tax subsidies for ethanol manufacturers, while Democrats introduced legislation last month to eliminate $2 billion worth of tax subsidies a year for the big five oil companies.

If a deal on taxes can be reached it will leave the door open for both parties to concentrate on the bigger priority in these talks: Spending cuts. Cantor has stated that the talks have established a blueprint for agreement on more than $2 trillion in spending cuts over the next 10 years, very close to the Republicans’ target of $2.5 trillion.

While accepting the need to raise the debt limit, House Speaker John Boehner (R-Ohio) has said that deficit cuts must exceed the size of any increase in borrowing authority, a position that neither President Barack Obama nor any other Democrat has challenged.

Of course, any talks of eliminating these subsidies and tax loopholes will mean Washington will be barraged by an army of lobbyists and attorneys seeking to keep these very things in place. But it’s up to politicians on both sides of the aisle to ignore them and do the right thing for America. It was done 25 years ago, and if enough cooler heads from both parties prevail and are willing to resist caving in to special interests or catering to their political bases, it can be done again.

Photo Credit: Wikimedia Commons

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