Wednesday, July 20, 2011

I am not thrilled by the "Gang of Six" tax plan

The Gang of Six plan is unlikely to go anywhere anyway. But, while I realize that political constraints mean one must lower one's standards pretty severely in reaching a judgment, and while I recognize that there may be some good people involved with this who are trying to be constructive, I am unimpressed.

Herewith is the tax portion of the Gang of Six plan in its current form, with comments from me in caps.

"Simplify the tax code by reducing the number of tax expenditures and reducing individual tax rates, by establishing three tax brackets with rates of 8–12 percent, 14–22 percent, and 23–29 percent." I SEE ABSOLUTELY NO REASON FOR LOWERING MARGINAL INCOME TAX RATES WHEN WE HAVE A HUGE FISCAL GAP AND RISING HIGH END INCOME INEQUALITY. SEE MY DISCUSSION HERE OF THE 1986-STYLE TAX REFORM MODEL'S OBSOLESENCE. AND NEEDLESS TO SAY, NO BRAVE WORDS HERE ABOUT WHICH TAX EXPENDITURES TO CURTAIL.

"Permanently repeal the $1.7 trillion Alternative Minimum Tax." ONCE AGAIN, HOW BRAVE THEY'RE BEING - TAX CUTS ARE TRUMPETED, TAX INCREASES DISCUSSED ONLY IN THE MOST GENERAL TERMS.

"Tax reform must be projected to stimulate economic growth, leading to increased revenue." MEANINGLESS IN CONTEXT, AND LIKELY TO BE RELATIVELY TRIVIAL, UNLESS THEY ARE TALKING, AS I DON'T THINK THEY ARE, ABOUT SOMETHING LIKE SHIFTING TO A CONSUMPTION TAX. NOTE THAT REDUCED PROGRESSIVITY MIGHT TEND TO INCREASE ECONOMIC GROWTH, BUT THAT'S A TRADEOFF, NOT UNAMBIGUOUSLY GOOD. IT'S ALSO HARD TO EVALUATE THE GROWTH EFFECTS WITHOUT REFERENCE TO THE "SPENDING" SIDE OF THE PACKAGE.

"Tax reform must be estimated to provide $1 trillion in additional revenue to meet plan targets and generate an additional $133 billion by 2021, without raising the federal gas tax, to ensure improved solvency for the Highway Trust Fund." ONCE AGAIN, WHO NEEDS DETAILS?

"If CBO scored this plan, it would find net tax relief of approximately $1.5 trillion." INSIDE-THE-BELTWAY CODE FOR LOSING REVENUE RELATIVE TO SIMPLY LETTING THE BUSH TAX CUTS EXPIRE. BUT WHY EXACTLY WOULDN'T WE JUST LET THEM EXPIRE? (I REALIZE THAT THIS IMPLICATES THE OBAMA ADMINISTRATION, NOT JUST THE REPUBLICANS.)

"To the extent future Congresses find that the dynamic effects of tax reform result in additional revenue beyond these targets, this revenue must go to additional rate reductions and deficit reduction, not to new spending." WHY WOULDN'T THE TAX SYSTEM'S HYPOTHETICALLY ENHANCED EFFICIENCY SUGGEST USING IT MORE, NOT LESS? THIS IS JUST A VACUOUS SOP TO REPUBLICANS, WHO I DON'T THINK WILL BE IMPRESSED.

"Reform, not eliminate, tax expenditures for health, charitable giving, homeownership, and retirement, and retain support for low-income workers and families." ALREADY BACKING OFF THEIR SUPPOSED KEY REVENUE SOURCE. ONCE AGAIN, THE WAY THEY STRESS THE EXTENT TO WHICH THEY'RE NOT CUTTING, RATHER THAN WHAT THEY WOULD CUT, WHILE POLITICALLY UNDERSTANDABLE, HELPS SHOW THE HOPELESSNESS OF THE ENTERPRISE.

"Retain the Earned Income Tax Credit and the Child Tax Credit, or provide at least the same level of support for qualified beneficiaries." I AGREE, BUT ONCE AGAIN THIS IS A DESCRIPTION OF WHERE THE BUDGETARY IMPROVEMENT ISN'T COMING FROM.

"Maintain or improve the progressivity of the tax code." MIGHTN'T THIS SUGGEST NOT REDUCING THE TOP INDIVIDUAL RATES? IF RATES ARE FLATTER BUT TAXES STILL RISE JUST AS SHARPLY WITH INCOME AS BEFORE, THEN (A) EFFECTIVE MARGINAL TAX RATES HAVEN'T ACTUALLY DECLINED, AND (B) PERHAPS PHASE-OUTS ARE BEING USED TO CREATE HIDDEN MARGINAL TAX RATES.

"Establish a single corporate tax rate between 23 percent and 29 percent, raise at least as much revenue as the current corporate tax system, and move to a competitive territorial tax system." ONCE AGAIN, ALL THE DETAIL IS ABOUT TAX CUTS, FROM REDUCING THE CORPORATE RATE AND ELIMINATING THE TAX ON U.S. COMPANIES' FOREIGN SOURCE ACTIVE BUSINESS INCOME. WHAT ABOUT THE U.S. MULTINATIONALS' TRANSITION GAIN FROM SHIFTING TO EXEMPTION GIVEN THEIR $1.2 TRILLION OR MORE OF FOREIGN EARNINGS THAT ARE ALREADY OUT THERE? AND AGAIN, WHERE ARE THE TAX INCREASES? FOR EXAMPLE, DO THEY PLAN TO COMBINE MAKING CORPORATE DEPRECIATION LESS GENEROUS AS A PAY-FOR WITH BEING MORE PRO-GROWTH? AND WHAT ABOUT U.S. COMPANIES' ABILITY TO REPORT U.S. PROFITS AS ARISING IN TAX HAVENS? NO WORD OF ADDRESSING THAT.

To some extent, I think the disingenuous gobbledygook here (to put it unkindly) reflects a deliberate, well-meaning, and not entirely foolish strategy. E.g., the thought may be that if Republicans were to agree in principle to raising revenues relative to the baseline in which the Bush tax cuts are extended, one huge obstacle to the revenue-raising changes would have been eliminated. But I consider it naive to think that this would actually work. Once the rubber hit the road, the Republicans would go right back to their anti-tax absolutism. And even if they didn't, the taxpayers affected by particular revenue-raising proposals would continue to make the task impossible.

Hard though it might be - and I admittedly don't think that ANYTHING will work politically; our system is just too dysfunctional - I think you have to try to lead with a bit more of the bad news, rather than leaving it all for later. If today, against the urgent backdrop of potential August 2 default, you can't even say what you'd be willing to do to raise some people's taxes, what exactly is supposed to make it easier down the road?

2 comments:

'G said...

The plan gives the taxwriting committees six months to change the tax code so it will (a) raise more revenue, (b) let everybody pay less, (c) stimulate the economy, (d) be simpler, and (e) all of the above. Why not ask for a pony as well?

It's like the 3-step plan for organizing one's life: 1) find pen and paper, 2) make a list,3) do things on list.

Political theatre of the absurd!

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