Thursday, November 17, 2011

Compromising On Their Terms

The Joint Select Committee on Deficit Reduction, dubbed the "supercommittee," is due to report by next Wednesday and it is time to check in on the latest effort by Republican leader Rush Limbaugh to deceive his audience. On Wednesday, Limbaugh claimed

All the while, this is being presented as, "The Democrats are eager, willing, ready to compromise; but these rascally Republicans, they are fighting over tax increases! They don't want tax increases, they don't want the rich to pay their fair share, they don't want any more money coming in to Washington." Never mind the fact that the Republicans have proposed all kinds of tax reform. They have proposed alternatives to the Bush tax cuts being extended. They have proposed tax rate reductions that have been scored as increases, total increases in revenue to the Treasury. All rejected. But that isn't being reported.

What's being reported is, "The Republicans are being obstinate! They will not deal, they won't talk, they won't raise taxes." The real question is raise revenue. The Republicans have all kinds of proposals that they have put forth involving tax reform that would raise revenue. All of them have been rejected. Paul Ryan was even on Fox this morning saying this and pointing it out. A Fox reporter said, "Well, aren't the Republicans...?" I was struck. I was driving in and I was listening to Fox on the radio, and the Fox reporter (I don't know who it was, 'cause I wasn't watching so I couldn't tell who the voice belonged to), asked the question, "Well, aren't the Republicans gonna propose anything?" and Paul Ryan said, "What do you mean? We proposed things. We detailed the various proposals that they put forth and have been rejected." Nobody knows about it, hasn't been reported.

Obsessed with the committee's charge to reduce the debt by at least $1.2 trillion over the next decade, Democrats have, The Washington Post reported, "signaled a willingness to cut spending by $876 billion, including $225 billion from Medicare and $50 billion from Medicaid, these officials said, and raise tax revenue by $400 billion, far less than they had earlier demanded." Meanwhile, Republicans, whom Rush says," have all kinds of proposals that they have put forth involving tax reform that would raise revenue," have put forward... one.

Early this month, Senator Pat Toomey, former head of the Club for Greed, proposed a plan which would lower the top tax rate for individuals from 35% to 28% while cutting spending by $700 billion and increasing revenue by $500 billlion in new revenue by closing tax loopholes and reducing tax deductions. Contrary to Limbaugh's claim of "proposed tax rate reductions that have been scored as increases," Toomey's plan has not been scored but a similar plan has been scored by the Joint Committee on Taxation and Brian Beutler explains it

is almost as dramatic. It would make current policy permanent and then broaden the base sufficiently to pay for cutting all tax rates by roughly 15% from the 2011/12 rates (the top rate would be cut to 30%), with $600 billion left over. This proposal would cost almost as much - $3.0 trillion over ten years.

This similar proposal gives a sense of how dramatically Toomey’s proposal would have to cut deductions for the middle class. In order to raise $3.0 trillion, it would:

1. Reduce the personal and dependent exemptions ($3,800 per taxpayer and for each dependent) by 75%.

2. Reduce all itemized deductions, including the deductions for home mortgage interest, charitable contributions, and state and local taxes, by 75%.

3. Reduce certain above-the-line deductions by 75%.

4. Reduce all personal credits except the EITC, including the child tax credit, college tuition credits, and credits for retirement savings, by 75%.

Meeting Senator Toomey’s requirement of a top rate of 28% would require even more dramatic cuts to tax expenditures than those listed above. He has indicated that he is not open to raising taxes on capital income, including deductions for retirement savings and the reduced rates on capital gains and dividends, which generally benefit high-income taxpayers. This means that the only way to make the numbers add up is essentially to eliminate all of the deductions and credits listed above immediately with no transition, or to enact the tax expenditure cuts above and dramatically curtail the exclusion for employer-provided health insurance.

In fairness, when Limbaugh referred to "all kinds of plan, that raise revenue," he might have been thinking also of the proposal of Texas Representative Jeb Hensarling, like Toomey a member of the supercommittee. But as with the Pennsylvanian's scheme, that of Hensarling would extend the Bush-era tax cuts (video below), notwithstanding Rush's claim of "alternatives to the Bush tax cuts being extended." And the Texan's proposal wouldn't even raise net revenue, relying instead on the supply-side genie. Beutler notes

“We have gone as far as we feel we can go,” Hensarling said. “We put $250 billion of what is known as static revenue on the table, but only if we can bring down rates [but] any penny of increased static revenue is a step in the wrong direction. We can only balance that with pro-growth reform and frankly the Democrats have never agreed to that…. if we can’t get any type of reforms in health care, which has helped drive the nation towards insolvency, then, no, there’s no reason to frankly put any static revenues on the table.”

When Hensarling says “static,” he means revenue that will actually, predictably come into the Treasury. Republicans claim in a Laffer-ite way that their preferred tax policy will create enough economic growth to raise revenues even if the math says it won’t. Democrats reject that kind of analysis.

Well, of course they do. As Bruce Bartlett, domestic policy adviser to the late President Ronald(6) Wilson(6) Reagan(6) detailed, "no serious Republican economist has ever said that a tax rate reduction would recoup more than about a third of the static revenue loss." And that would be Republican economists, anxious to demonstrate that tax cuts don't reduce tax revenues.

Contributing to GOP obstinacy is Hensarling's threat to modify the "trigger" to be automatically pulled if the committee does not come to an agreement. Part of the Budget Control Act of 2011, it is to include cuts in defense equal in cuts to discretionary domestic spending, but Hensarling is stoking fear about the danger in cutting the $700 billion defense budget.

Democrats- foolishly- have agreed to undermine the widely popular social safety net. In return, Republicans have agreed to extend the Bush tax cuts, cut domestic spending, and increase the tax burden on the middle class.

And so it goes in the world of Republican "compromise."

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