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The Spectacle Blog
David Wessel of the Wall Street Journal has explained the revenue provisions of the Gang of Six outline that caused some confusion yesterday. In short, the plan would cut taxes $1.5 trillion relative to what would happen if all current laws (such as the Bush/Obama tax cuts and Alternative Minimum Tax) were maintained, but would raise them $1 trillion relative to current policy:
Measured against current law, the Gang of Six plan is a tax cut. The law currently says that the Bush tax cuts expire at the end of 2012 for everyone and that the pesky Alternative Minimum Tax will reach deeper into the middle class (because it doesn’t automatically adjust its thresholds for inflation).
The Gang of Six, among other things, would eliminate the Alternative Minimum Tax-that alone would cost the Treasury about $1.7 trillion versus current law. Altogether, the various tax changes in the Gang of Six plan would reduce tax revenues by $1.5 trillion.
But no one expects current law to prevail. Congress every year, for instance, puts a patch on the Alternative Minimum Tax so it won’t hit more families. And both the White House and many Republicans want to extend the Bush tax cuts for taxpayers with incomes under $250,000 a year. (The argument is over expending them for taxpayers with higher incomes.)
So budget wonks have developed “alternative” or “realistic” baselines. The Bowles-Simpson fiscal commission used such a baseline, borrowing one developed by the Obama White House. Among other things, that yardstick assumes the AMT is patched year after year, and assumes the tax cuts for the under $250,000 crowd are extended. Against that baseline, the Gang of Six raises about $1 trillion revenue over 10 years, roughly the same sum that the Bowles-Simpson plan did.
The alternative baseline that should count is the one in which the AMT is patched every year. The AMT patch is one of few genuinely bipartisan pieces of legislation that Congress passes each year. There is no reason to believe that Congress would have allowed it to take effect if not for the Gang of Six, meaning that, substantively, the Gang of Six plan includes a revenue increase of $1 trillion over 10 years.
The outline of the Gang of Six plan is still so vague that it’s impossible to say where exactly those revenues will come from, but in broad terms they will be created by ending credits, deductions, and preferences and closing loopholes in the tax code. Although, in general, that’s the best possible/least costly approach to raising taxes, Republicans in the House have considered similar measures tax hikes.
On the other hand, the plan, which includes simplification of the tax code into three different low-rate brackets for income, would lower marginal rates, including the top rate to under 30 percent. Right now, marginal tax rates are scheduled to go up automatically at the end of 2012, to the pre-Bush levels. Unlike with the AMT, the top rates, at least, probably would go up under Obama.
In terms of taxes, then, the Gang of Six proposal is fairly similar to the Bowles-Simpson recommendations. While the measure would significantly increase tax revenues over current policy, it would also prevent Obama from raising marginal rates — which are much more costly, in terms of economic growth — in 2013.
Update:
The House Budget Committee believes the Gang of Six plan would constitute a $2 trillion revenue increase. They’re also not sure just how those revenues would be raised or where they would come from.
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More Blog Posts by Joseph Lawler
http://spectator.org/blog/2011/07/20/would-the-gang-of-six-plan-rai
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Bill Hussein O'Stalin| 7.20.11 @ 10:30AM
Washington has become a city full of incestuous liars and prevaricators:
http://blog.heritage.org/2011/.....-promises/
A group of U.S. Senators called the Gang of Six has cobbled together the third Senate-originated half-baked idea this week that would lead to hiking the debt limit. All three Senate approaches — the McConnell Plan, the McConnell-Reid “Just Borrow More” Plan, and now the Gang of Six “Maybe Later in the Year” Plan — have one thing in common: procedural gimmicks that promise Congress will do in the future what it won’t do now to control spending. The time has passed for procedural gimmickry — Congress should cut spending and cut it now.
The Gang of Six circulated a plan that has Congress enact a law now whose principal elements (1) make unspecified spending cuts and unspecified tax increases to yield a $500 billion reduction in the federal deficit, and (2) impose spending caps on discretionary spending, but not on Social Security, Medicare, Medicaid and welfare programs that are the main cause of out-of-control spending.
Then the Gang of Six promises — an unenforceable promise — that some time in the next six months Congress will enact a second law with all kinds of Christmas presents for everybody. As an imaginary present for Republicans, for example, the Gang of Six promises to eliminate the Alternative Minimum Tax, drop the top individual tax rate to 29 percent, and drop the corporate tax rate to 29 percent. And, as an imaginary present for the Democrats, the second law would have what appears to be a $3.4 trillion tax hike over the next 10 years, so the size of government can just keep on growing. Of course, enactment of the second law is just a promise, or, in the case of the huge tax hike, a threat.
Although the “Gang of Six” claims that their plan is separate from the debt limit increase, everyone in Washington including President Obama thinks its precise purpose is to pave the way for a debt limit hike. Under the Gang of Six Plan, Congress will pass some easy stuff now, but punt the hard stuff to the future, promising that Congress will pass it some time within the next six months. There’s plenty in the Gang of Six Plan for President Obama — he gets his tax hikes and, in reality, he gets to borrow lots more money. But the American people don’t really get much of anything, except the usual empty promise of action in the future.
Wayne | 7.20.11 @ 11:29AM
"Among other things, that yardstick assumes the AMT is patched year after year, and assumes the tax cuts for the under $250,000 crowd are extended."
It is really $125,000.
R E Malitz| 7.20.11 @ 11:37AM
Sir.
The only things socialists can do are: lie, steal, enslave, and kill. They are Not capable of keeping a promise. When will the "gentles" in the Senate realize this?
Reagan Akbar!
Out, REM
Oldefarte| 7.20.11 @ 4:24PM
Of course, the Gang's plan increases taxes, and that's exactly what Obama/Democrats want. The only plan should be for the Republicans to obtain as much spending reduction as possible; avoid a default/shutdown; and for the rest of us to elect Republicans next year to take over the Senate and presidency [at which time a budgetary spending decrease can properly be achieved]!!!!!!
Oldefarte| 7.20.11 @ 4:24PM
Of course, the Gang's plan increases taxes, and that's exactly what Obama/Democrats want. The only plan should be for the Republicans to obtain as much spending reduction as possible; avoid a default/shutdown; and for the rest of us to elect Republicans next year to take over the Senate and presidency [at which time a budgetary spending decrease can properly be achieved]!!!!!!