Tax Q&A

Pro-Growth Tax Reform

The Path to Prosperity’s major proposals to make the tax code simple, fair and competitive:

  • Reject the President’s call to raise taxes. Instead, keep overall revenue as a share of the economy at historical averages between 18 and 19 percent, a level compatible with growth, and – if the spending restraints in this budget are enacted – sufficient to fund government operations over time.

  • Repeal the $800 billion tax increase included in the new health care law.

  • Reform the tax code by consolidating the current six brackets and cutting the top individual rate from 35 percent to 25 percent.

  • Broaden the tax base to keep revenue as a share of the economy at levels sufficient to fund critical missions that rightly belong in the domain of the federal government (as outlined elsewhere in this budget).

  • Encourage economic growth and job creation by lowering the corporate tax rate from 35 percent, which is the highest in the developed world, to a much more competitive 25 percent.

  • Remove distortions from the code by eliminating or modifying deductions, credits and special carve-outs that leave many companies paying no tax at all.

Q: Does this budget cut taxes for the rich?

A: This budget reforms the tax code to make it simpler, flatter, fairer and more globally competitive. It lowers tax rates while broadening the tax base. This is not a net tax cut – it is a revenue-neutral reform to make our economy more competitive and to ease the burden that tax complexity imposes on taxpayers. Individuals, families and employers spend over six billion hours and over $160 billion a year trying to negotiate a labyrinth of deductions.[1]

The Path to Prosperity rolls back the countless loopholes and burdensome rules that cost Americans money, time, and frustration to comply with. It makes the tax base broader and more secure so we are better protected against economic fluctuations. It gets the government out of the politically-driven business of picking tax winners and losers. And it spares American employers from having to chose between hiring more workers and paying the highest corporate tax rate in the developed world. 

While The Path to Prosperity proposes lower rates to promote growth, it also proposes to roll back deductions that go overwhelmingly to a relatively small class of mostly higher-income individuals. And it eliminates the carve-outs and loopholes that have allowed some corporations to avoid paying taxes altogether.

Q: How do the tax proposals in The Path to Prosperity compare to those put forward by President Obama’s bipartisan Fiscal Commission?

A: The principles of tax reform guiding The Path to Prosperity are identical to the principles that guided the tax proposals put forward by the President’s bipartisan Fiscal Commission. The final report of the Commission stated that its goal was to:

Lower rates, broaden the base, and cut spending in the tax code. The current tax code is riddled with $1.1 trillion of tax expenditures: backdoor spending hidden in the tax code. Tax reform must reduce the size and number of these tax expenditures and lower marginal tax rates for individuals and corporations – thereby simplifying the code, improving fairness, reducing the tax gap, and spurring economic growth. Simplifying the code will dramatically reduce the cost and burden of tax preparation and compliance for individuals and corporations.[2]

The Path to Prosperity, by lowering tax rates and broadening the tax base, follows the same principles. But rather than allow government’s share of the economy to rise to 21 percent, as the Commission’s proposals would allow, this budget includes real spending restraint that enables government’s share of the economy to remain below its historical average of 19 percent.

This is important, not because 19 percent is a magic number, but because Washington should not solve its spending problems by taking even more money from taxpayers. American families have had to cut their own budgets in the last few years, and it is time for Washington to do the same. By returning government to its proper roles, this budget brings spending in line with taxes – not the other way around.

Q: Weren’t our deficits caused by the Bush tax cuts for the millionaires?

A: No. We have deficits because Washington spends too much, not because Americans are taxed too little. When Republicans provided tax relief in 2003, the amount of revenue collected by the government went up by more than $700 billion over five years and the deficit went down.[3] Tax rates have been stable for the past ten years, while over the past four years, Washington increased spending by 39 percent.[4] That has helped produce three trillion-dollar deficits in a row.  This budget tells Washington that is has to stop spending money we don’t have. 

This budget extends of the current tax rates and repeals all of the tax increases in the new health care law. It ensures that taxes return to their historical average and never rise above 19 percent as a share of the economy over the next decade.

This budget reflects the fact that too much spending – not too few taxes on the American people – is the reason we are facing a deficit and debt crisis. While taxes have historically been around 18 percent of the economy since World War II, spending under Democrats over the past four years has soared from the historic average level of 19 percent of the economy in 2007 to 24 percent of the economy in 2010.[5]

Those who contend that Washington should increase taxes on American families and job producers to pay for this spending binge must be willing to increase revenue by “by more than 50 percent” just to keep debt at its current level, according to the Government Accountability Office.[6]

Q: Won’t this budget hurt homeowners and charitable giving by removing the mortgage interest and charitable contribution tax deductions?

A: The Path to Prosperity does not specify assumptions about these two deductions. This budget simply calls for tax reform that will promote desperately needed economic growth and job creation. 

With regard to specifics on tax reform, The Path to Prosperity assumes that the top tax rate for individuals and corporations does not exceed 25 percent. This will provide job creators with a top tax rate that is competitive with our global competitors and with the certainty needed to create jobs. 

Q: Does this budget include special tax breaks for oil companies?

A: No. This is absolutely false. In fact, this budget does the opposite. This budget calls for fundamental corporate tax reform that scales back the deductions, loopholes and carve-outs that are distorting the corporate code. It seeks to treat large and small businesses alike by cutting the corporate rate to 25 percent, so that it is no longer the highest corporate tax rate in the world. This budget does call for an increase in safe, environmentally responsible domestic energy exploration – but that would actually increase tax revenues paid by oil companies, while at the same time lowering gas prices and creating jobs in America.

Q: How did the Heritage Foundation produce its economic estimates about The Path to Prosperity?

A: The economic estimates provided by the Heritage Foundation confirmed what many economists agree regarding the guiding principles for pro-growth tax reform – lower rates to promote growth, with a broader base to achieve revenue neutrality and economic efficiency, yield more economic growth than an inefficient code with high rates does.

House Budget Committee Chairman Paul Ryan requested an economic analysis of The Path to Prosperity from the Heritage Foundation’s Center for Data Analysis because the Center is one of the few organizations in Washington capable of performing “dynamic analyses” of budget proposals. Dynamic analyses take into account the pro-growth effects of budget policies, instead of treating the economy as static.

Following the release of The Path to Prosperity, the Heritage Foundation found a technical error in their unemployment-rate estimates.[7] This error did not affect any of the other estimates in the Heritage Foundation’s study, and none of the numbers in the Heritage Foundation’s study affect the economic assumptions in The Path to Prosperity.

The economic assumptions in The Path to Prosperity come from the non-partisan Congressional Budget Office. The CBO’s economic assumptions are implicit in its spending and revenue baseline numbers, which the Committee used when developing its proposals.



[1] Internal Revenue Service. Taxpayer Advocate Service. 2010 Annual Report to Congress: Volume One. January 2011 http://www.irs.gov/advocate/article/0,,id=233846,00.html (accessed April 8, 2011).

[2] The National Commission on Fiscal Responsibility and Reform. The Moment of Truth. December 2010 http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf (accessed April 8, 2011).

[3] Office of Management and Budget. Historical Tables: Table 1.1: Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789-2016 http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/hist01z1.xls (accessed April 8, 2011).

[4] Ibid.

[5] Office of Management and Budget. Historical Tables:  Table 1.2 Table 1.2: Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930-2016 http://www.whitehouse.gov/omb/budget/Historicals (accessed April 8, 2011).

[6] Government Accountability Office. The Federal Government’s Long-Term Fiscal Outlook. March 22, 2011  http://www.gao.gov/new.items/d11451sp.pdf (accessed April 8, 2011). 

[7] Heritage Foundation: “Heritage Updates Budget Unemployment Estimate.” April 6, 2011. http://blog.heritage.org/2011/04/06/heritage-updates-ryan-budget-estimate/ (accessed April 8, 2011)