Everything is easier to do if the economy is growing. If you want to cut spending, it is easier to do in an environment where people think they are going to have robust income growth and aren’t as dependent on government. In terms of taxes, growth gets you not just more income to tax, but taxpayers moving into higher rates.
What we did on January 1st isn’t tax reform, but it may well preclude any tax reform for this year. First, the whole point of tax reform is to reduce the rates and broaden the base. But we just raised the rates. I find it difficult to think that after the election, where Obama campaigned and won on higher tax rates on the rich, that policymakers would then turn around and reduce rates on the rich, even in exchange for a broader base.
We should reform the tax system, no question. We are going to need to move beyond the current set of tax instruments to raise the needed revenues—a VAT and or a carbon tax seem like the obvious ways to go.
If we do go over the cliff, lawmakers will be on a budget path that deals with the deficit quite well over the medium term and the long term. Going over the fiscal cliff does the dirty work that Congress has so far been unwilling to do. [But] there are problems with going over the fiscal cliff, and I don't want to minimize them. [The economy] would take a hit, and I think we should enact a stimulus package to avoid that.
The fact that going over the fiscal cliff would hurt the economy in the short run is, to me, basically saying stimulus would help the economy in the short run. The whole debate over whether the stimulus is a good idea is answered by those who say going over the fiscal cliff is a bad idea.
Stimulus would help a lot. I find the whole lack of discussion about having a stimulus to be disappointing... Republicans don't want to acknowledge that stimulus could help. Democrats don't want to acknowledge that we need another stimulus.
I think almost all of the major tax expenditures could be trimmed, curtailed or eliminated. I don’t think any stand scrutiny with the possible exception of charitable contributions. But even there, if you said that’s got to change because the other ones are changing, I would not object.