Early Reports on House R’s Budget

March 20th, 2012 at 7:03 pm

Some details are now dribbling out on the House Republican budget, authored by Rep Paul Ryan.

According to the WSJ, their budget reduces the tax schedule faced by American households to two rates: 10% and 25%; the corporate rate comes down to 25% (currently, there are six rates, ranging from 10% to 35%; the top corporate rate is 35%).

Two very important things to consider here.  First, according to the link above, the Ryan budget claims it will pay for the lower rates by closing loopholes currently in the code, but it doesn’t say which ones.  Neither does it say the income levels to which the two brackets apply.  In other words, it’s unscorable.

It is not hard to cut rates and generate savings with massive magic asterisks like this.  And, for the record, both sides do it.  But it’s hard to take such dramatic tax changes seriously without more details.

Second, it’s not two versus six rates that makes the tax system way too complicated.  It’s all the different income definitions, the trillion per year in tax expenditures, the special provisions like the “carried interest” loophole, that lets hedge fund managers have a tax rate of 15% instead of 35% on their earnings.  Simplify that part of the code—treat income as income, regardless of the source—and it really doesn’t matter how many rates you have; you’ll be able to figure out your tax liability in minutes.

More to come as more facts come out on the House budget, but from what I’ve read so far, it’s a lot like last year’s version: big spending cuts on health care and the safety net to pay for big tax cuts tilted toward the wealthy—and, of course, no new revenue.  In that sense, it provides a useful contrast between the R’s priorities and those presented in the President’s budget of a few weeks ago.  Recall that his budget combined both spending cuts and new revenue measures.   I simply don’t see how we maintain a government able to meet the current and forthcoming challenges we face—demographic, climate, global, competitiveness—on spending cuts alone.


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10 comments in reply to "Early Reports on House R’s Budget"

  1. Tyler says:

    “[T]he President’s budget of a few weeks ago … combined both spending cuts and new revenue measures,” also known as fiscal austerity – the kind that is destroying Europe at present.

    The president must be highly influenced by the works of the Committee For a Responsible Federal Budget. To the nation’s detriment, he must not be reading you or Paul Krugman (even though Paul seems to think tax hikes don’t count as fiscal austerity).

    • PeakVT says:

      I think increasing taxes on very high incomes would be expansive at this point, as long as the money is spent and not used to reduce the deficit. We’re suffering from a shortage of demand, not capital.

    • Chigliakus says:

      Tyler I often see you treat all tax increases as equal, without considering marginal propensity to consume. Tax hikes on the rich, where they’re austere at all, are far less so than tax hikes on the poor or middle class. For a tax hike on the rich to be austerity you’d have to have two conditions: the rich person taxed would have to otherwise have spent that money on something that stimulates the US economy (not savings or foreign investment) and the government would have to take the extra income and put it towards the deficit or something equally non-stimulative.

      • Tyler says:

        I agree that a tax hike on the middle class is far worse than a tax hike on Warren Buffett and friends. In general, though, I would rather money stayed in the economy no matter whose money it is.

        I don’t believe in raising taxes on the rich to fight inequality. We should cut taxes on the middle class to achieve the same goal. I do support taxes on pollution and other harmful things, but only if a regulation wouldn’t work better.

        Finally, I believe James Galbraith when he uses the following example to show that federal taxation destroys money: “If you choose to pay taxes in cash, the government will give you a receipt–and shred the bills. Since it is the source of money, government can’t run out.”

  2. PeakVT says:

    According to the WSJ, their budget reduces the tax schedule faced by American households to two rates: 10% and 25%

    Another issue with this kind of tax structure that should always be mentioned is that it doesn’t make much sense to tax people earning $250,000 at the same rate as someone earning $25,000,000. Obviously, Republicans want it that way because their core constituency is millionaires and billionaires. But for the rest of us – even those earning $250K – its lousy policy.

  3. Bumpa says:

    Ryan thinks himself an expert in the field – and if expert is defined as “a former drip under pressure,” I s’pose he is. Waiting to see him in the unemployment line come November.

  4. NP says:

    Surely it matters whose taxes you are hiking? If one taxes the rich that is not much fiscal austerity because they don’t need a job and not suffering. However, if you increase taxes on people who are barely scraping by then they will feel it a lot. If you don’t employ vast swathes of the population in productive labor then they are impoverished. We can not survive as a country by having such a large percentage of the people not working either we get them jobs or we find ways to transfer the wealth more equitably so they don’t have to work.

  5. He loved Big Brother says:

    “I simply don’t see how we maintain a government able to meet the current and forthcoming challenges we face—demographic, climate, global, competitiveness—on spending cuts alone.”

    well if you continue to insist that we need a government then you will continue to struggle with this point……………….

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