How Grover Norquist’s Pledge Blocks Real Deficit Cuts
Eli Lehrer has an incisive piece on this page about Tom Coburn’s “Gang of Six” tax proposals. I believe however that the proposals deserve a warmer endorsement than Eli offers.
An important cause of America’s long-term debt problem is the intellectual cul-de-sac into which Republicans have driven themselves. Republicans have accepted a total ban on any kind of tax increase as party orthodoxy. And they have submitted to the authority of Grover Norquist of Americans for Tax Reform to determine what constitutes a “tax increase.”
Norquist takes the view that any action that increases the revenue column of the federal government must be deemed a tax increase – and that such increases are only permissible if they are offset by an equivalent cut to the spending column.
The trouble is that a lot of federal spending – especially the spending done by Republicans – takes the form of tax remission.
The federal government offers a tax credit of up to $9,500 for the purchase of plug-in electric cars. How exactly is that different from writing a check to every plug-in buyer? Yet canceling this program would count as a tax increase under Grover Norquist’s test.
Adopt a child and you can qualify for a tax credit of up to $13,100. You can even get credit for the cost of meals and lodging while traveling in a foreign country to receive the child. You can say a lot of things about this measure. But is it a “tax cut”? Hardly.
Enrolled in college or university? You can deduct up to $4,000 of qualified tuition expenses.
Over 65? Or disabled? Adjusted gross taxable income of less than $17,500? Tax credit for you.
And so on. The point is not that these tax expenditures are all necessarily ill-advised. (It’s genuinely more expensive to be disabled, and public money to help the disabled cope with the costs imposed on them by nature or accident seems a reasonable response by a civilized society.) The point is: they are expenditures, disguised as tax cuts.
This point – so obvious with the smaller tax expenditures – is true also of many of the larger tax expenditures, even if familiarity blinds us to the fact. Mortgage interest deductibility and the tax exclusion of employer-provided fringe benefits: these are subsidies too, no less subsidies for being widely rather than narrowly used.
Yet on the Norquist system and by the Norquist rule, the US cannot address these subsidies contained in the tax code unless and until they are simultaneously matched exactly with other subsidies and benefits that happened to have been framed as outlays. Economically, the rule makes little sense. Politically, it has the job of making deficit reduction twice as difficult as it needs to be. With consequences that …. well let’s leave that for a second post.
By: David Frum, Frum Forum, April 25, 2011
Yes, Paul Ryan Does Cut Taxes For The Rich
A number of conservatives have asserted that, contrary to what I’ve written, the House Republican budget written by Paul Ryan does not cut taxes for high earners. (See John McCormack, Ramesh Ponnuru, Charles Krauthammer, and McCormack again quoting Ryan.) Here’s the argument. Ryan keeps overall tax levels the same as they are right now by making the tax cuts permanent. He would then reduce the corporate tax rate and the top income tax rate by ten percentage points, from 35% to 25%. But he would make up for that additional revenue loss by closing “loopholes and deductions,” many of which benefit the rich. Therefore, his plan doesn’t really cut taxes on the rich.
There are four problems with this claim, each of them fatal.
First, the argument simply reflects a legitimate difference in baselines. Under current law, the Bush tax cuts are in full effect, but expire at the end of 2012. Keep Bush-era tax levels in place is not a tax cut compared with the tax code now, but it is a tax cut compared with the tax code in 2013. Which is the true baseline? I think both sides have a point, and Congressional scorekeepers have taken to using both baselines.
When President Obama accuses Ryan of cutting taxes for the rich, he’s using the post-2012 baseline. I consider that the best point of reference because the most important force in our political system is inertia. Given our multiple veto points, it takes great effort to enact a policy change that the parties disagree upon. Ryan proposes to make that change. Therefore, I think it’s fair to describe him as “cutting taxes,” even if revenues did remain at present levels (which I dispute, but more on that later.) I do think there’s merit in both baselines. The argument that Obama is lying about Ryan — that calling him a tax-cutter is, in Krauthammer’s characteristically understated phrasing, “scurrilous” — rests upon the assumption that the current-policy baseline is not only more preferable but the only remotely honest point of reference. That seems like a huge stretch.
Second, even if we accept Ryan’s preferred baseline, his description of his plan is hard to accept at face value. Tax reform is a trade where you take away deductions (that’s hard) and use the money to reduce rates (that’s easy.) The rate reductions are specified. The reduced deductions aren’t. Another way to put this is that Ryan has proposed a specific tax cut that would benefit the affluent, accompanied by utterly vague promises to find offsets. At the very least, the rate-lowering portion ought to carry more weight than the deduction-closing portion.
Third, even if we accept both Ryan’s baseline and assume he will match every dollar in lost revenue from the rate cuts with another dollar in reduced deductions, he will almost certainly wind up cutting taxes for the rich relative even to the post-Bush tax code. Ryan implies that his plan would leave the rich paying the same effective tax rates as they do now because he’s “getting rid of loopholes and deductions, which by the way are enjoyed by the top [tax] rate filers, the people in the top two brackets.” But he hasn’t put out any details. In 1995, House Republicans loudly promised to promote shared sacrifice by rooting out corporate welfare in the tax code. The actual savings they produced turned out to consist of proposals that hurt the poor (by cutting the Earned Income Tax Credit), benefited business (by letting them swipe funds from employee pensions, keeping the money as profit and thus increasing corporate tax revenue), or other reverse-Robin Hood measures.
Now, Ryan was not around then. But we can get a measure of his intentions from the more specific tax plan laid out in his “Roadmap” from 2010. That plan constituted a massive tax cut for the rich, combined with a tax hike on the middle class.
The Tax Policy Center examined various proposals to reduce tax deductions while using the revenue to lower rates across the board. All the plans decreased the tax burden for the top-earning 1%. The problem is that tax deductions are just not worth as much to very rich people as low tax rates.
It’s true that the Bowles-Simpson deficit reduction plan includes proposals that would lower rates to around 25% while increasing the effective tax rate paid by the very rich. To do that, you have to do things like raise the estate tax rate and completely eliminate the preferential treatment of capital gains. But Ryan’s budget promises instead — and this is the only specific policy commitment in its tax section, other than lowering rates — to expand the preferential treatment of income from wealth:
Raising taxes on capital is another idea that purports to affect the wealthy but actually hurts all participants in the economy. Mainstream economics, not to mention common sense, teaches that raising taxes on any activity generally results in less of it. Economics and common sense also teach that the size of a nation’s capital stock – the pool of saved money available for investment and job creation – has an effect on employment, productivity, and wages. Tax reform should promote savings and investment because more savings and more investment mean a larger stock of capital available for job creation. That means more jobs, more productivity, and higher wages for all American workers.
Fourth — almost there! — even if you reject everything I’ve written to this point, Ryan’s plan includes the repeal of all the taxes in the Affordable Care Act, including the taxes on the affluent. Here’s the Path to Prosperity’s description of health care taxes he proposes to undo:
The new law imposes a 0.9 percent surtax on wages and a 3.8 percent surtax on interest, dividends, and capital gains. Both taxes only apply to filers in the top two income brackets, but as discussed elsewhere in this section, those filers include small businesses employing millions of Americans, and the new taxes on capital will reduce the pool of capital available for investment and job creation.
There. Per Paul Ryan, these are upper-bracket taxes he proposes to lower. He could keep those taxes in effect, and cover a few of the uninsured people he throws off their coverage, or make the progressively-more-inadequate health care vouchers he uses to replace Medicare slightly less inadequate. But he chooses not to do that, because he believes it’s more important to tax capital at lower rates. It’s fine for him to believe that. But he and his defenders have to stop insisting that he doesn’t propose tax cuts for the rich. He indisputably does so.
By: Jonathan Chait, The New Republic, April 20, 2011
Modern Snake Oil: “We Have No Revenue Problem”
OK, this is the day everyone hates. You have to pay your taxes. Who wants to write that check? Nobody, probably.
The truth, however, is that Rep. Paul Ryan, the Tea Party, and most politicians are not being honest when they tell us there is no revenue problem, only a spending problem.
The Associated Press reports today that an IRS analysis tells us that 45 percent of Americans will pay no federal income taxes for 2010. Plus, the 400 Americans with the highest adjusted gross incomes averaged $345 million for the year. Their average federal income tax rate was 17 percent, down from 26 percent in 1992. Wow, and they need another tax break?!
This confirms the Warren Buffett line that his secretary pays a higher percentage of her income in taxes than he does.
But here is our problem: We cannot come close to dealing with this deficit unless we both cut spending and raise revenue. We certainly won’t accomplish anything unless we deal with the tax problem and reform our tax code.
I firmly believe that every American who works or gets income should pay something in federal taxes. Even if it is a small amount. This by itself won’t do much to dent the deficit, but it would be important as a symbol that everyone is in this together. Second, and most important, the gap between rich and poor and the middle class is widening in this country. Those who earn over a million dollars did not deserve an average tax cut of $120,000 under George Bush; they certainly don’t need that raised to $200,000 under the Ryan plan.
We need to recognize that the richest 2 percent of Americans should pay more, but we also need to make this tax system make sense. How can you have a society where nearly half the income earners pay no income taxes, due to deductions, loopholes, and special deals?
I am not arguing that struggling families should be hit with a whooping tax bill, but, rather, that our politicians should be honest with the American people. If you are fighting two wars, you have to pay for them. If you have to save the car companies and our financial institutions, you have to pay, at least initially. If you are going to provide Medicare, Medicaid, Social Security, education, bridges, roads, and air traffic controllers, for that matter, you have to have the revenue.
It is just plain dishonest to put forth a budget and a plan that says “we have no revenue problem.” That is modern snake oil. It is time that we dealt with our tax problem, otherwise we won’t really be dealing with our deficit at all.
By: Peter Fenn, U.S. News and World Report, April 18, 2011
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