Thoughts on the Simpson-Bowles Deficit Commission report


Erik Kain

Erik writes about video games at Forbes and politics at Mother Jones. He's the contributor of The League though he hasn't written much here lately. He can be found occasionally composing 140 character cultural analysis on Twitter.

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67 Responses

  1. Avatar Francis says:

    Property values are so low as to put many people underwater on their mortgage, and net equity is one of the best measures of the rate of default. Yet you want to drive property values sharply down even further? Eliminating the homeowner deduction is, at minimum, a 20 year project.

    I would sign on to the elimination of that deduction, if we wait until property values are back in line with mortgage debt and the deduction is reduced no more than 5 percentage points per year for 20 years. But the cost of my acquiescence is a tax on carbon emissions.Report

    • Avatar Mark Thompson in reply to Francis says:

      I would sign on to this. I agree that the homeowner deduction desperately needs to go, but it needs to go very, very slowly. Otherwise you’re talking about seeing already hard-hit housing prices collapse to an unbelievable extent, largely for people who are already underwater, but also forcing far more to go underwater as well, while those same people entirely relied upon the existence of the mortgage deduction in making their purchase in the first place. The deduction needs to be phased out in a way that people who relied on its existence in making their purchasing decisions won’t get completely hosed but also in a way that new home buyers know exactly what they’re getting into.Report

      • Avatar Koz in reply to Mark Thompson says:

        Forgetting about the homeowner exemption for a minute, in the bigger picture this seems topical to some things you and I have talked about before. The two things that seem the most relevant to me are:

        1. It’s spending focused. Ie, the tax changes seem to be about reform more than revenue generation; and given that

        2. It’s the other team that’s worked up in a fit over this.

        Add these two things together, and the GOP might be better on fiscal issues than you’ve been giving them credit for.Report

        • Avatar North in reply to Koz says:

          Wait, you may have to unpack this a little… I think I’m missing your point…

          -Obama proposes bipartisan deficit comission with teeth. Bill is introduced to create said comission and is filibustered by the GOP and fails.
          -Obama then creates bipartisan comission anyhow via appointment but one with considerably less teeth of course. GOP howls.
          -Obama’s comissions initial proposals are, as you say, a lot of cost cutting with only a bit of taxes mostly tax reforming. And this is proof that:
          -The GOP is better on fiscal issues??Report

          • Avatar Koz in reply to North says:

            Yep. In the big picture the problem with the budget is the desire of liberals and Democrats in general to collectivize the capital base in the country to their preferred political or social ends. In other comments sometimes I call this folk Marxism.

            At a more nuts and bolts level, this tends to be hidden by Democrats self-delusion that if the tax about the same money out of the economy relative to some program they propose then it adds up to about a wash and everything is kosher, as though the governments accounts are the only ones that are important.

            Therefore, the crucial item in discussion of fiscal responsibility is the Democrats’ political willingness to cut the welfare state in any meaningful way. The underlying issues are somewhat complicated but that’s the key fact that makes any real progress very very difficult.

            The proposals themselves can be created pretty easily. What’s hard is finding Demo’s to support them, which we can see by the response to yesterday’s announcements.Report

            • Avatar North in reply to Koz says:

              Uh huh, but even if we accept your characterizations and unsupported assertions all of this conveniently ignores that the Republicans are equally in a frenzy over the proposal due to its tax increases, defense cuts and the ending of agricultural subsidies. So looks like the folk Marxism is a bipartisan affair even by your own biased measurements.Report

              • Avatar Koz in reply to North says:

                That’s not how I read it. On the Right the people who are opposing it and the grounds that they are opposing it on don’t carry as much weight as you’re supposing.Report

              • Avatar Koz in reply to Koz says:

                And digging a little deeper, let’s look at the fundamental reasoning underlying the particular numbers and programs which aren’t all that important anyway. It’s not like particular Republicans or conservatives are going to endorse every part of the proposal, or all of it put together.

                But in stark contrast to any iteration of the health care bill, it is a useful jumping off point in negotiations and further discussion and here’s why: with this proposal, to the extent that any Democrats support it concedes that the fundamental building blocks of the welfare state are up for grabs, or “on the table” as they say.

                Of course the libs and D’s weren’t intending that at all, which is why the reaction from the Right side and the Left side has been fundamentally different.Report

              • Avatar Mark Thompson in reply to Koz says:

                Heritage termed Wyden-Bennett a good jumping off point, yet Bennett was promptly primaried in no small part because of it, and hardly any Republicans were willing to even push it as a good starting point for fear of retribution.Report

              • Avatar Koz in reply to Mark Thompson says:

                Right. Again, this goes back to the last comment, it of the fundamental reasoning behind the program, as opposed to the details of it. I think we’d both agree that if we had to pick between Wyden-Bennett and Obamacare we’d take Wyden-Bennett.

                Nonetheless, the premise behind Wyden-Bennett and Obamacare is that access to health is, for everybody, a government responsibility, as a matter of last resort if not sooner. Given where we are economically, at no time was it ever the right move for the GOP to acquiesce to that.

                That’s what makes this proposal different. And again, the details aren’t very important. They’ll get changed a hundred times before anything becomes law. The key is to get D’s on record as agreeing that the basic building blocks of the welfare state are up for grabs.Report

              • Actually, the premise behind Wyden-Bennett was, as much as anything else, the notion that existing government interventions had drastically screwed up the health insurance market. Lest we forget, the primary reason that market was so screwed up was because of government tax incentives for employer-based insurance (which were in turn an offshoot of FDR’s wage and price controls). Indeed, most of the “coverage for all” aspect of Wyden-Bennett was premised on eliminating SCHIP and Medicaid.Report

              • Avatar Koz in reply to Mark Thompson says:

                Actually the coverage for all part is an individual mandate much like Obamacare. That’s why (some of) the D’s were willing to take it.

                (Some of) the GOP were willing to sponsor it for the reason you mentioned. It unwound the tie between health insurance coverage and a particular job.

                In any case, it pretty clearly established a government universal scheme (maybe not quite an entitlement since the cost-shifting was more transparent) and on that ground shouldn’t have been made law at any time in Obama’s Presidency.Report

              • Avatar North in reply to Koz says:

                Koz, you can’t be serious. Norquist pretty much had a litter of kittens over it. The man is so important in GOP internal politics that he’s virtually an arm of the party. Where is the equivalent left wing figure who’s rejecting the proposal out of hand? And does the fact that this is being produced by a deficit reduction committee established despite and over the strident objections of the right in general and the GOP in particular not factor in at all?Report

              • Avatar Koz in reply to North says:

                “Where is the equivalent left wing figure who’s rejecting the proposal out of hand?”

                Nancy Pelosi and Brad DeLong.

                Btw, Norquist doesn’t swing nearly as much weight as he used to. We just don’t care about him that much.Report

              • Avatar North in reply to Koz says:

                I’m not aware of either issuing a blanket denunciation of it.Report

              • Avatar Koz in reply to Koz says:

                I replied with links but I don’t see it yet. Might be in moderation purgatory.Report

              • Avatar North in reply to Koz says:

                Yep, I went google hunting and found probably a couple of them so there’s a point there. But the fact that all of this came out of Obama’s comission undercuts the idea that his party desires government growth as an ends inof itself.

                We’ll see once the dust settles and the real horsetrading begins.Report

            • Avatar Simon K in reply to Koz says:

              Reading that in the sidebar it went as far as “n the big picture the problem with the budget is…” and I just knew the next word would be “Democrats”. I was not disappointed.Report

        • Avatar Simon K in reply to Koz says:

          Both teams are in a right tizzy over this. This is how I know its along the right linesReport

        • Avatar Mark Thompson in reply to Koz says:

          To be determined, Koz. Certainly Grover Norquist seems pretty up in arms about it and has gone on record as saying that he would consider any support of the plan to be a violation of his Tax Pledge. This is especially important given that the overwhelming majority of deficit reduction in the plan comes from the changes in the tax code. Although nominal rates would decrease substantially, the elimination of tax expenditures would result in a significant increase in taxes paid. The plan only looks to reduce outlays from 24% of GDP to 22% of GDP, even as it increases revenues from 14% of GDP to 21% of GDP. So as outraged as liberals may be about much of the plan, ultimately most of the deficit reduction comes from things that they may be willing to go along with.Report

    • It’s a little bit scary to do, though — eliminating this deduction removes a powerful reason motivating people (like myself) to buy their own homes. It is a significant driver of the demand side of the equation determining the price of real estate. If the deduction goes away, I would expect demand for residential real estate to decline and thus prices to fall.Report

    • Avatar Simon K in reply to Francis says:

      The UK eliminated the equivalent deduction with a phase-out over 10 years. That worked reasonably well. The problem with very long term things like this in the US though is that a future congress will be tempted to f*ck them up.

      The US situation is slightly different anyway because many people who are eligible for the mortgage deduction don’t take it because the standard deduction is bigger or because they don’t want to have to complete a full return. Those who are eligible and do take it (self included) are in higher tax brackets. As long as its accompanied by an overall cut in rates, we won’t have to sell our homes because our marginal rates will fall somewhat which should at least offset the negative impact of losing the deduction.

      There’s still a risk to house prices because it eliminates the false incentive to buy a house to save on your taxes. However, that will go away fast even with a phase out scheme – given the costs of real-estate transactions anyone buying should be thinking in terms of staying in place for at least 5 years ,which means they have to plan for the deduction going away.Report

  2. Avatar Lyle says:

    Note that the big deductions come in the first 15 years of the mortgage. With rates as low as they are now, will people refinance to extend their mortgage in the future. I say stop it on new mortgages, including re-fis, disallow any deduction for second homes, and reduce the principal on which the interest may be deducted to 500k.Report

  3. Avatar dexter45 says:

    I have two questions. Why is the tax write off so bad on homes? The second question is why does the tax deduction on private homes hurt renters? Isn’t the interest paid by the owner of apartment house considered a business expense and deductible from the owner’s taxes? I would go for a tax increase on gas if, and only if, all the money was used for public transportation or for greening low income homes.Report

    • Avatar North in reply to dexter45 says:

      To the first question Dex, the tax write off is extremely expensive in terms of its cost to the government. Also it isn’t capped in much of any way so it turns into a mighty boondoggle for wealthy homeowners in multimillion dollar homes. It also encourages people to maintain a high balance on their home mortgages; why pay off your loan faster when you loose a significant tax write off in doing so. The opportunity cost and incentives strongly encourage people to keep relatively little equity in their homes which of course makes their finances precarious in the event of job losses or other unexpected expenses.

      To your second question the answer is somewhat more complicated. The deduction essentially amounts to a subsidy that is given to home owners but not renters. While some states do have an assortment of schemes to try and rebate a portion of rents none of this is very substantial. So if you have two identical people, one living in a home and one in an apartment the home dwelling one would likely get thousands of dollars off their tax bill just by virtue of carrying a mortgage. When you factor in that renters are usually lower income individuals and that the mortgage deduction is having an impact on the Federal budget (the cost of which is borne by renters and homeowners equally) this amounts to a huge regressive income transfer from renters to home owners.Report

  4. Avatar Francis says:

    We’re not collecting enough taxes. And to save the planet we need a carbon tax. But the poor get screwed pretty hard already. So: a carbon tax, dedicating all of the income stream to soc sec until it’s in long term balance, and the rest to the PBGC to start bailing out all the underwater public pensions out there. Eliminate the employer tax deduction on healthcare. Eliminate all corporate taxes, but tax capital gains as ordinary income. Expand the EITC. Long-term, eliminate Medicaid. Federalize it and fold it into Medicare.Report

  5. Avatar Michael Drew says:

    Lowering rates would be extremely easy and popular, while eliminating these ur-popular deductions, much as it would be very good policy, is an incredible lift politically and therefore amounts to a game of Yahoo Fantasy Tax Policy. It’s fine to play that game if one wants, but this commission is supposed to help today’s actually existing politicians deal with the politics of an imminent deficit crisis, not hold forth on ideal tax policy or advance agendas about the proper size, scope and role of government. (The report proposes a mind-bogglingly-silly-in-the-context-of-a-deficit-discussion hard cap on federal revenues at 21% of GDP. Believe it or not Mr. Charimen, the discussion about the right size of government actually is a different discussion from the one about deficits, and frequently they cut against each other.) If the elimination of the mortgage and health benefits exemptions make up for the lost(!) revenue from the lowered rates, that’s wonderful, you’ve convinced me in the the context of the seminar/conference room that it’s a good proposal, and by all means I don’t disagree that tax reform is a worthy enterprise. But this doesn’t move the proposal any closer to political reality, nor is a really serious contribution to the budget discussion, since it is largely a tradeoff. (If the proposal was merely the elimination of the exemptions, that would still be very unrealistic as politics, but at least it would be something serious to talk about in terms of the budget.)

    Meanwhile, what is completely real(istic) is that the great majority of the cost growth contributing to a ballooning deficit can be accounted for in one program, and it’s spelled M-E-D-I-C-A-R-E. From what I understand. this report says that to balance the budget, health care costs will have to be constrained. How does it propose to do this? By assumption, specifically a simple assumption that health care cost growth will be kept to GDP growth plus 1%, “by establishing a process to regularly evaluate cost growth, and take additional steps as needed if projected savings do not materialize.” Sounds painless.

    In focusing on Social Security and discretionary spending and punting on health costs, this report reveals these co-chairs to be fundamentally unserious about the task they were asked to perform. Tax reform is lovely. It’s wonderful; let’s do it,. It doesn’t address the deficit.


    • Avatar Koz in reply to Michael Drew says:

      “The report proposes a mind-bogglingly-silly-in-the-context-of-a-deficit-discussion hard cap on federal revenues at 21% of GDP. Believe it or not Mr. Charimen, the discussion about the right size of government actually is a different discussion from the one about deficits, and frequently they cut against each other.”

      Uhhh, no. First of all, it’s not clear that significantly more revenue than that can be collected. As a rule of thumb remember this: it’s easy to pass the taxes, it’s hard to collect the revenue.

      Moreover, this lack of any such commitment is why the economy is stalling right now. The private sector knows that government expenditures, ie, the size of government has to be paid for somehow, eg, taxes now, taxes later, inflation, whatever. And whatever it is comes out of the future earnings of the private sector, therefore stopping economic activity today (and in the future).

      To put it another way, the crisis part of the deficit crisis is a crisis of the size of government. We’ve had deficits before without a deficit or debt crisis. The reason it’s a crisis now is because there is very little credibility that “we’ll straighten it out” without severe confiscation of the private capital base.Report

  6. Avatar Simon K says:

    The more I find out about this the more I like it. I suspect a lot of other centrist types are having the same reaction. AMT goes, capital gains taxed as income, only three bands, no more state tax deduction. Whats not to like?

    But I’m puzzled about how they get a congressional majority or even a majority of their own panel for this? Both sides are already demonizing the plan – the left believes its a trillion dollar raid on the middle class and the right is horrified there are an tax increases at all. In spite of the obvious dishonesty of both positions there’s a lot of people out there who’ll believe it – so where do the votes come from? I’ve never seen a mainstream congress-critter in either part do something because it was the right thing to do, and tea party crackpots probably still believe you can eliminate the deficity by cutting arts funding and programs for minority transgender single parents.Report

    • Avatar Michael Drew in reply to Simon K says:

      Am I mistaken, or is home ownership more or less the cornerstone of the American middle-class (however much we may wish it were otherwise or/and wish it hadn’t been brought about by an unwise tax exemption)? Yes, as the value of the residential property rises, the value of that exemption rises, but as you reach the uppermost income levels surely the share of yearly income devotes to housing drops off. And does this proposal not entail lowering the top tax rate from 36 to 23%? Wouldn’t ending the exemption for health coverage amount to a far greater percentage increase in paid tax for a person making $55,000 than for a person making $5.5 million? The cost of insuring the heath of human beings doesn’t rise with their income. How is this not a proposal to give the super-wealthy a significant tax cut at the relative expense of the middle class, as measured by the size of the incidence of the effects as compared to income?Report

      • Avatar Michael Drew in reply to Michael Drew says:

        That wasn’t as clear as I’d have liked. Allow it to read, “Wouldn’t ending the exemption for health [benefits] amount to a far greater increase in paid tax as a percentage of income for a person making $55,000 than for a person making $5.5 million?”Report

        • Avatar Michael Drew in reply to Michael Drew says:

          …and *that* in turn was supposed to have a quote of the sentence in the original starting and ending the same way. You probably got my point from the start anyway.Report

        • Avatar North in reply to Michael Drew says:

          Maybe initially Michael but one of the reasons people get so much compensation via employer provided healthcare is because of the exemption. The argument is that if you remove the distortionary benefit exemption then companies would provide compensation more in direct cash and less in healthcare benefits.
          Then, in theory at least, people can just shop for their own benefit plans and pay for them directly and I believe the healthcare bill includes a credit for lower middle class and low income people buying healthcare.Report

          • Avatar Michael Drew in reply to North says:

            That doesn’t change the fact that the tax incidence of the change in question on income goes down as income rises. Again, this is not about these exemption eliminations in isolation. You might well be right that that all comes out in the wash nicely with PPACA, but then I’m not arguing against these exemption changes in isolation – I grant they may make good policy on a pure rational analysis of tax policy. The point is that the proposal is also for the top tax rate to tumble precipitously. Add it up, and it’s a relative gain for the wealthy. Where can you recover the 12% on billion dollar incomes that are made here but saved and invested abroad? I don’t know of an exemption in the tax code you could ax that gets that done.Report

            • Avatar North in reply to Michael Drew says:

              Well perhaps Michael, but on that same note the end of preferential tax treatment of capital gains taxes would be a titanic tax increase on the rich that would be virtually unfelt by the poor. Hedge fund managers, for instance, would have lost their tax bolt hole and that’s not a small amount of money.
              I’m sympathetic to the idea that you feel that the overall program favors the wealthy but I’m not convinced.
              Also the mortgage tax exemption in itself is also a huge income transfer from non-home owning citizens to home owning citizens (rich and poor) and the employer healthcare exemption has deep and fundamental rippling effects on just about every aspect of healthcare in this country so there’re really good reasons to phase them out beyond the need to balance the budget.Report

              • Avatar Michael Drew in reply to North says:

                I knew about the cap gains side, but I admit I haven’t been taking it into account in these arguments, which is pretty dumb. Maybe that allays my concern altogether, I’m not clear enough on the numbers. But good point.Report

          • Avatar Michael Drew in reply to North says:

            You’re right, though; if it results in the end of employer-based health coverage, then the net tax change in the long run is nothing. But if that happens (and again, I realize this is ardently desired by many and I’m not arguing against it on its own terms), then the tax and budget implications pale in comparison to the fact that you’ve just backed the country into major health-care reform that goes WAY beyond anything we did this year. If that’s a feature not a bug for you, great (it might be for me, I still have to look at it closer), but let’s not pretend it’s just a tax tweak, let’s call it what it would be.Report

            • Avatar North in reply to Michael Drew says:

              I wouldn’t say the change is way beyond what has already been enacted. My own read of PPACA was that it was designed with ending employer exemptions in mind but that politics necessitated that element being watered down to merely a tax on “Cadillac programs”. If that policy can be enacted under the banner of fiscal responsibility then it seems to me that there’d be excellent synergy with PPACA. To wit they’ve already put out a safety net for healthcare and now they’re proposing to gradually nudge people out of the burning building into it. That seems workable to me.Report

          • Avatar Mike Schilling in reply to North says:

            The argument is that if you remove the distortionary benefit exemption then companies would provide compensation more in direct cash and less in healthcare benefits.

            If companies stop providing health care benefits (subsidized or not), their employees will be thrown into the individual health-care insurance market, meaning that their costs will go up, their coverage get much worse, and likelihood of being uninsurable will skyrocket. All of this is a result of being moved to a situation where a professional health-care purchaser with expertise and tools, who represents a large amount of business, is replaced by an individual who has none of those advantages. i can see why insurance companies (and their lackeys) want that — why would anyone else?Report

      • Avatar E.D. Kain in reply to Michael Drew says:

        But if you think about it, the very rich are far more capable of finding the loopholes and taking advantage of them than the middle class. Effectively abolishing loopholes would make it much harder for the rich to get out of paying their taxes.Report

        • Avatar Michael Drew in reply to E.D. Kain says:

          There will always be loopholes. The very rich will always be the ones most able and with the most incentive to find and use them. There’s no way you can make ending the mortgage and health benefits exemptions and lowering the top tax rate by 12 points a relative hit on the middle class, E.D. That’s not an argument that it doesn’t hit the wealthy, and obviously it will hit them in greater absolute dollars. But relatively, it’s absolutely a tax break for the rich at the expense of the middle class. To be fair, this is not the onlytax proposal the report makes. But it does make it.Report

      • Avatar Simon K in reply to Michael Drew says:

        Back of the envelope, in order for it to be worth itemizing deductions and claiming the mortgage tax deduction you have to have a pre-tax family income for a family of four of about $45k and to have maxed out your allowable debt-to-income ratio on your mortgage for a monthly payment of about $1250. Thats would put you in the middle of the middle class but with a mortgage over $300k at current 30 yr fixed rates, which is rather high, nationwide. Thats the baseline for starting to get a benefit from it – essentially you need to be in the upper middle class at the very least or somehow have unusually high housing costs.

        The top tax rates are currently fictitious for most purposes. At the top of the 28% bracket AMT kicks in (or did in 2009 – we don’t actually know for 2010 since they’ve not passed the patch yet), so because of the insane operation of AMT, the actual marginal tax rate in the phase out range is in the 40s. After that it drops back down to the nominal AMT rate. Yes, this is insane – it means your marginal tax rate actually drops as you earn more – but essentially it means the officia non-AMTl federal tax bands over 28% apply to almost no-one – maybe some wealthy Alaskans.

        On the health benefits – the cost of maintaining a human doesn’t change with income, but the proportion of compensation taken as health insurance does. As I’ve said elsewhere, health insurance isn’t a very good way of paying for healthcare you could have paid for from savings. The only reason higher income taxpayers have employer-based health insurance is the tax break, which is especially important because of the perverse operation of the tax code as you start to get into the higher bands.

        I think you’re missing the significance of the other changes for higher-income taxpers – an end to capital gains tax as a separate tax is huge. The AMT is also actually beneficial to very wealthy taxpayers – once you’re past the phase-in range, the marginal tax rates are low, so people do time taxable events for years when they will have AMT liability. That particular trick goes too.Report

        • Avatar Michael Drew in reply to Simon K says:

          Ultimately I definitely concede that it is entirely possible that the way it all finally adds up this works out okay for the middle class vis-a-vis the wealthy. I just don’t think that anyone who isn’t deeply immersed in just about every wrinkle of federal tax policy can be at all sure of that, and that on its face you have to admit this plan (again, it’s just one of three options the report suggests, as well) isn’t obviously not how I describe it. At the very least I think a moderately-tax-aware person like myself has to remain skeptical of assurances like that, but ultimately I can’t claim to know exactly how it would shake out.

          In other words, if you say so, but I’m not taking it for granted.Report

          • Avatar North in reply to Michael Drew says:

            I’d say that’s an honorable position to take.Report

          • Avatar Simon K in reply to Michael Drew says:

            How it all shakes out in the end is another matter. This is just a negotiating position after all. In the end I suspect the mortgage and health insurance deductions will only be capped, rather than abolished because even though they currently disproportionately benefit the wealthy at the moment, congress will be unable to resist the logic behind “middle class tax breaks”.

            I can say, though, that as an upper-bracket taxpayer I’d end up paying more under this plan because I’d lose my mortgage interest and local tax deductions, which are large because we live in a very expensive part of the country. However, it would be well worth it for the peace of mind from actually knowing what our tax bill is going to be.Report

            • Avatar Michael Drew in reply to Simon K says:

              Knowing that you would pay more tells us nothing. That’s the point. It’s a question of how much more you pay as a part of your income as compared to how much more some folks somewhere in the middle class may pay. And I don’t think you or I know the answer to that.

              The larger point is that I think it should be clear that the deficit problem is not going to be solved largely on the tax side, though this proposal does some good on that score. SO it seems to me that this thread demonstrates the extent to which in making such far reaching tax reform proposals in the context of a very specific mandate to focus on deficits, the chairmen have distracted the conversation away from what is the entire point of their task.Report

              • Avatar Simon K in reply to Michael Drew says:

                For a particular person, no. But its quite easy for the median family of 4. Median family income is $49k. The proposed standard deduction is $15k married, plus four personal exemptions (I’m assuming those stay since I’ve not heard otherwise). That’s a taxable AGI of $19400, which would be taxed at the lowest rate of 8% giving at tax bill of $1552. Under the current system their taxable AGI is $23000, assuming no itemized deductions, which splits between the 10% and 15% bands giving a total tax bill of $2612. If they had the absolute maximum allowable (by a bank) mortgage payment of $1360/month and all of that was interest, they’d get an extra $4820 deduction, so their total tax bill would be $1882, which is still more.Report

    • Avatar North in reply to Simon K says:

      Well Simon a couple of things…

      -This isn’t the actual committee recommendation, it’s essentially their starting point. Then they’re going to start horse-trading to see what they have to do to get everyone on the committee to sign on.

      -If they can get a large enough buy in on the committee then congress has to take a look at it.

      -This is a trial balloon and above all it’s a test, not for the politicians but for the polity. If voters are genuinely concerned about the size of the government then they should support the general gist of the proposal and pressure their representatives to do so too because this is generally the kind of stuff you’d have to do to balance the budget; unpleasant increases in taxes, ending of exemptions for interest groups and cutting of popular programs or defense sacred cows.

      -If people instead just kvetch about the unpleasant steps and there’s no support then I imagine the politicians will probably go back to their regular business of borrowing money to buy cake for the voters until economic circumstances force the country to even more painfully cut it out.Report

  7. Avatar Zach says:

    “Lowering income-tax rates would not only be good in terms of stimulus, it would be good for the American economy years into the future.”

    Look at slide 25 of the proposal where they estimate the impact on after-tax income. It’s poorly described, but my guess is that they’re comparing their proposal to current law, and not Bush-tax-cut-extended law. If that’s the case, you’re probably looking at a tax hike for the bottom 60%. If it’s not the case, you’re still looking at an effective tax hike for the bottom 40% given the range of cuts in social programs that the plan requires (by freezing spending, raising the retirement age, capping medicare/aid inflation, etc).

    I’m skeptical about class-warfare sort of attacks, in general, but I’d heartily join in if we’re deciding that the top 20% gain 10% more in after-tax income than the middle 20%.

    Even though the tax rates are cut, tax expenditures are cut so that revenue is increased in this plan. If you cancel out income tax revenue with cuts in tax expenditures (which are largely progressive), you’ll wind up with a regressive result, which probably won’t provide a net stimulus.Report

    • Avatar Michael Drew in reply to Zach says:

      Whether it provides stimulus (a dirty word for “enhancing growth”), at least you’re clear on how this proposal incides on taxpayers of various income levels, even though you’re not a class warrior. That is excellent.Report