Move Over Simpson-Bowles…There’s a New Plan in Town

December 4th, 2012 at 6:48 pm

The Center for American Progress has a smart, simple, progressive, and politically plausible new fiscal plan out and it’s worth a close look.  Here are the main features that caught my eye:

–Raises significant revenue, and does so progressively.

–Simplifies the codes (repeals the AMT!), again, in a progressive manner (e.g., turns some deductions into credits, which is a) more plausible than ending said deductions, and b) more fair than the current system).

–Disposes of that artificial $250,000 threshold line-in-the-sand.

–Some preferential treatment of investment income but closer to goal of equal treatment.

–Lowers the corporate rate, something many businesses and their think tanks have clamored for (paid for by closing corporate tax breaks).

–Builds on the $1.5 trillion of spending cuts on the books, but without hurting vulnerable beneficiaries of the safety net and social insurance.

–Protects domestic programs (non-entitlements) from further spending cuts; generates Medicare savings from specific reform to the delivery system.

–$100 billion to preserve the payroll tax cut, or something like it, in 2013.

Here are the broad outlines of the plan:

Source: CAP

And here’s a distributional table–relaitve to current policy (i.e., what’s in place now, not what’s in place if we go over the cliff–current policy is the relevant baseline) liabilities go up a bit for families above $100K but by less than half-a-percent of their income.  And the progressive impacts are easy to see in the “percent change” column.

Source: CAP

I suggested above that it’s politically plausible.  It’s actually pretty Clinton’esque—to be expected when you look at the list of authors—and most people recognize that tax structure as compatible with strong growth, strong profitability, and fiscal rectitude.  But it does call for higher tax rates for some (and not just the top 2%) including cap gains and dividends (compared to current policy, that is).  Still, I don’t see why this should be any less beloved than Simpson-Bowles, widely embraced by conservatives (though, truth be told, once they learn what’s actually in SB, they usually love it less).

What’s missing here?  There’s no tax on carbon—a bit surprising, but maybe they left that out for political reasons.  I’d add a financial transaction tax, but again, you’d lose some support.  Also, they need to be specific about how they’d pay for lower corporate tax rates.  It’s easy to say “loophole closures to be named later” but as Rep Boehner’s opening cliff offer reveals, that’s not a useful formulation for real reform.

That said, the plan’s simplicity—not trotting out a bunch of new cats and dogs—is another attractive feature.  I know a lot of people want to see a VAT or some other major restructuring of the code, but conditional on simplifying what we have, enhancing progressivity, and raising needed revenue, I’m much more partial to working off of what we’ve got.  I just think that’s the most realistic way forward.

Once we get the cliff behind us, there’s likely to be a move towards tax reform.  I’ll be touting this plan more in coming weeks as a solid candidate for that debate.

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9 comments in reply to "Move Over Simpson-Bowles…There’s a New Plan in Town"

  1. Tyler Healey says:

    Why does a monetarily sovereign nation like the United States have to worry about “paying for” deficit increases?

  2. wendy beck says:

    I like it! There’s one provision I would tweak and that is I would keep tax on dividends at 15% for those who have no wage income and are over 65 and have dividend income under 50K. Many lower and middle income seniors have no place to earn income. They have been paying the price for the artificially low interest rates we have in order to bring back the housing market. CDs and Money Market accounts pay nothing. All they have are dividends to bring in some income since they don’t want to gamble any more than they have to on speculative stocks which may yield capital gains.

    Other than that, I like it much better than Simpson-Bowles. Do you know how this plan deals with Social Security COL increases? If it, like Simpson-Bowles is for a chained inflation rate which gradually erodes SS, I’m not for that.

  3. Jill SH says:

    What of a proposal to lower corporate rates while adding a financial transaction tax, to offset each other? Would that be pitting one set of corporations against a different set of corporations, or just muddying the waters? And/or not necessarily secure the necessary revenues?

    I keep wanting to make a distinction between companies/corporations that actually make something or provided a real service, as opposed to financial concerns that just game the money transaction system. Is that a reasonable distinction to make, and/or to develop tax policies around? And believe me, I do realize the value of a good, fairly conservative, banking system.

  4. Fred Donaldson says:

    I am bowled over by the simplicity and fairness of this alternative to Bowles Simpson.

  5. arbitrot says:

    Casey Mulligan has used you to support his Freshwater version of Romney’s 47%.

    Did he take our name in vain.

  6. Kathleen S says:

    Seems well thought out at first look; however, I’m concerned that there could be unintended consequences (i.e. possible tax increases) for certain moderate income groups such as single retirees in high tax states like NY (think widow who owns a home in Nassau County with high real estate taxes, NYS income taxes, and high medical expenses who is just about managing now and would like to stay in her home). Although I must admit I did not run any numbers.

  7. Steve Banicki says:

    We are facing a “fiscal cliff” because our politicians, President Obama and Congress, did not solve our debt problem in 2011 and pushed it off until the end of this year. They did this by agreeing to spending cuts that were deemed to be unacceptable by all parties. The logic, or lack thereof, was after the 2012 Presidential election both parties would be forced to reach a compromise in order to avoid such drastic measures. They put a gun to their own head. This is not a way for the government of the largest economy in the world to operate and we should be mad as hell.

    Below is a quote from the Congressional Budget Office (CBO) that describes the current budgetary problem facing the country if we do nothing, including not enacting the above mentioned fiscal cliff agreement.

    “… the persistence of large budget deficits and rapidly escalating federal debt would hinder national saving and investment, thus reducing GDP and income relative to the levels that would occur with smaller deficits. In the later part of the projection period (2022), the economy would grow more slowly … and interest rates would be higher. Ultimately, the policies… would lead to a level of federal debt that would be unsustainable from both a budgetary and an economic perspective.”

    There are two parts of our nations budget that cannot be ignored if we truly expect to get a handle on our fiscal problems; defense and entitlements.