Senate Democrats Unveil Their Own Budget Proposal; Push For Nearly $1 Trillion In Additional Tax Increases
Tony Nitti, Contributor
3/14/2013 @ 11:31AM |971 views
You remember 2009, don’t you? The King of Pop bid us farewell. UConn women’s hoops ran the table. And “Sully” Sullenberger craftily spun his inability to avoid a flock of geese into an act of heroism.
Well, 2009 was also the last time Senate Democrats released a budget proposal. Until yesterday, that is. And as you might expect, the budget put together by Budget Committee Chairwoman Patty Murray (D-Wash.) stands in stark contrast to the one envisioned by Republican Paul Ryan, whose budget was released earlier this week.
First, let’s just take a look at the big picture:
Here are the main stats surrounding the Republican budget, (all numbers in billions)
And here are the same stats for the budget released by Senate Democrats:
As you can see, the Democratic plan has no interest in balancing the budget; rather, it seeks to reduce the deficit–and the country’s resulting dependency on borrowing — to a “sustainable” level. And while you may argue whether that’s the right avenue to take, I’m no fiscal wonk. I cover tax policy. And to that end, here’s the most glaring disconnect between the Republican and Democratic budget proposals:
Budgeted New Tax Revenue Over the Next Decade
While Paul Ryan’s Republican budget eliminates the deficit by 2023 solely through a $5 trillion reduction in spending, the Democratic plan seeks what they refer to as a more “balanced” approach; one that contains a 1:1 ratio of tax increases to spending cuts. Or, if you’re the type who absorbs information better when it’s presented in graphical form, here’s the Democrats high-tech explanation of the parties’ differing tact towards deficit control:
The nearly $1 trillion in tax increase would be added to the $600 billion raised over the next decade through the year-end fiscal cliff deal, which increased the maximum rate on ordinary income and long-term capital gains/qualified dividends from 35% to 39.6% and 15% to 20%, respectively, on taxpayers with taxable income in excess of $450,000 (if married, $400,000 if single). Any additional hikes would also be in addition to the $1 trillion expected to be raised over the next ten years from the President’s signature Obamacare legislation, which along with other provisions, created an additional 3.8% surtax on the net investment income of taxpayers with adjusted gross income in excess of $250,000 (if married, $200,000 if single).
As with the fiscal cliff deal and Obamacare, the new tax increases contemplated by Democratic leadership will again target a specific group of Americans; specifically, the wealthy. This time, however, the additional revenue will not be raised by increasing tax rates; rather, deductions and preferences for the richest 2% will be on the chopping block. From the budget text:
It is the clear intent of the Senate Budget that the savings found by eliminating loopholes and cutting unfair and inefficient spending in the tax code not increase the tax burden on middle class families or the most vulnerable Americans who already have sacrificed greatly in recent deficit reduction efforts. These savings should come only from the wealthiest Americans and biggest corporations.
In defense of this approach, the Democratic budget explains why additional tax revenue should not be “off the table,” as Republican leaders have argued:
First, the projected average revenue level over the next ten years, 18.9 percent of GDP, remains well below the levels experienced the last five times the budget was in surplus. In each of those years, revenues ranged between 19.5 percent and 20.6 percent of GDP.
Second, revenues at 18 percent of GDP would not have been sufficient at any point in recent history, during both Republican and Democratic administrations, to have produced a balanced budget. In fact, spending has not been below 18 percent of GDP since 1966.
Finally, the retirement of the Baby Boom generation makes references to past budgetary levels largely irrelevant. Between 2010 and 2050, the ratio of those age 65 and over as a share of the working age population will almost double. So while we must work to preserve, protect, and strengthen our major health and retirement programs, we will also need to raise additional revenue from those who can afford it most if we are going to make good on the promises we have made to current and future retirees.
The budget proposal also rationalized its quest to generate additional tax revenue in light of the Simpson-Bowles plan, stating, “…Simpson‐Bowles…proposed more than $2 trillion in new revenue.”
I’m not sure where the Senators are pulling their numbers from, because I had the original Simpson-Bowles plan of 2010 as creating only $1.3 trillion in additional tax revenue, while their most recent proposal, issued just last month, sought only $600 billion in tax hikes in light of the revenue generated by the fiscal cliff deal and Obamacare. But then, math is hard.
If you’re looking for more specifics regarding exactly how Senate Democrats intend to raise the $975 billion in tax revenue through base broadening, good luck. The budget proposal merely floats a couple of alternatives:
One potential approach is an across‐the‐board limit on tax expenditures claimed by high‐income taxpayers (specifically, the top two percent of income earners). This could take the form of a limit on the rate at which itemized deductions and certain other tax preferences can reduce one’s tax liability, a limit on the value of tax preferences based on a certain percentage of a taxpayer’s income, or a specific dollar cap on the amount of allowable deductions.
This, as I’ve stated many times before, drives me nuts. Why? Because both parties continue to stress the need for simplification of the Code – even within this very budget proposal – and yet to solve an existing problem they propose adding additional layers of complexity to the law. The last thing the Code needs is more thresholds, limitations, and phase-outs.
Another potential approach by which Congress could increase tax fairness and reduce the deficit is by reforming the structure of particular tax expenditures. The Simpson‐Bowles illustrative tax reform plan, for example, proposed to convert certain itemized deductions into limited tax credits, which more equitably deliver tax benefits and, because only about one‐third of taxpayers itemize their deductions, are often better for targeting tax incentives at low‐income and middle class families.
This is a plan I can get behind, provided the benefit of the credits were capped at an easily computed maximum. As stated, a credit structure adds fairness for those who don’t itemize, and more importantly, it eliminates the need for lawmakers to undergo the futile task of attempting to completely eliminate an existing deduction – such as the one available for mortgage interest – in light of the opposition they would receive from powerful lobbyist groups.
On the business side, the budget continues the Democrats recent pursuit to eliminate tax breaks for private jets, which I find laughable given the paltry sum closing the “loophole” would generate, and to tax the carried interests of private equity and hedge fund managers as ordinary income, which I completely agree with, for whatever that’s worth.
So here we are: left with two competing budgets that nicely sum up the divided nature of our country when it comes to tax policy. One side says enough is enough, and that Washington has a spending problem, not a tax problem. The other argues that the rich still haven’t paid their “fair share.”
And in the end, everyone will likely just continue to agree to disagree.