Thursday, July 21, 2011

On the Gang Of Six Proposal To Reduce Deficit by Cutting Taxes

The Gang of Six is the name of a bipartisan group of six Senators who have written a recommendation aimed at cutting all the fat (and the liver and the kidney and the brains) out of the federal budget to trim the deficit! This is done by sending the granny home from the nursing home and by stripping her from some of her Social Security Income when she gets too old.

But it's also done by something that sounds like an attempt to lower taxes:
But that obscures the fact that the Gang of Six tax plan doesn’t really pencil out. They have promised:
• Lower marginal tax rates so that they fall in 3 brackets: one at 8-12%, one at 14-22%, and one at 23-29%;
• The elimination of the alternative minimum tax, which would cost $1.7 trillion;
• Reform but not elimination of the really big tax expenditures, like charitable deductions, the employer health care deduction and the mortgage interest deduction;
• Revenue-neutral corporate income tax reform;
• And yet a grand total of $1 trillion in net revenues, on top of the $800 billion built in from the assumption of the end of the high-end Bush tax cuts.
How in the would do you lower rates, cancel the AMT, get nothing from the corporate side, promise not to nix the biggest tax expenditures, and raise at least $3.5 trillion? That’s the cost of the AMT, $1.7 trillion, plus the revenue raising targets, $1.8 trillion. I’m NOT EVEN COUNTING the money you would have to make up for lowering the individual rates. You’d have to tax Wall Street trades or add a carbon tax to get to that number.
Maybe there is some way to make sense out of these numbers? But what is the sense in lowering tax rates and keeping corporate total taxes constant when the president tells us that all Americans Must Sacrifice? What are the corporations sacrificing? And what are the very wealthy sacrificing? Even with fewer allowed deductions, super-high income earners would probably take home more money than currently is the case.

On the other hand, less wealthy individuals are certainly asked to sacrifice! The cuts in Medicaid and Medicare the proposal includes could have severe consequences, often on the most vulnerable among us, and it is extremely hard to see how the tax part of the proposal would cut the deficit without the middle classes paying more than they do now.

Apropos of something slightly different, the top marginal tax rates used to be much, much higher all through the so-called golden years of America's economic domination. Yet now a 35% top rate is regarded as unacceptably high. Fascinating.