The Senate staff of the Joint Economic Committee, led by Sen. Bob Casey (D-PA), has put out a new report on the House Republican budget resolution, specifically their tax reform plans, which lowers the top marginal rate to 25%. Casey’s report shows that the tax cuts in the plan would fall entirely on the wealthiest Americans, while middle-class earners would see a tax increase.
The House budget plan, engineered by Rep. Paul Ryan envisions just two tax brackets, at 10% and 25%. They would also eliminate the alternative minimum tax, sapping the government of revenue from the upper classes. Ryan has proposed paying for much of these tax cuts, which total around $10 trillion over a ten-year window, by eliminating tax expenditures. Specifically, Ryan has said he would go deficit-neutral on the $4.5 trillion in lost revenues below the Bush tax rates. However, he has not specified the nature of those tax expenditures. The JEC report authored by Casey’s staff shows that the only way to make those cuts would be to gut nearly every credit and deduction in the tax code, including several crucial to the middle class, like the mortgage interest deduction and the deduction for employer-based health insurance.
Once they input those reductions of tax expenditures into the equation, the JEC found that couples earning between $50,000 and $100,000 would see an increase to their taxes of between $1,358 and $2,938 (depending on if they fell in the 10% or 25% tax bracket), while those earning between $100,000 and $200,000 would have their taxes increase $2,681. Meanwhile, millionaires and higher would still see reductions to their taxes by an average of $286,543. This discrepancy gets worse for individual filers rather than married couples filing jointly.
Democratic leaders pounced on the study today, which was reported early by Lori Montgomery at the Washington Post. In a conference call today, Sen. Chuck Schumer called the plan in question the “Romney-Ryan plan,” since Mitt Romney has endorsed a version of the Ryan budget. “The report shows that you cannot cut rates for the wealthy in a deficit-neutral way without raising taxes on the middle class,” Schumer said. “The Ryan-Romney plan violates the Grover Norquist pledge,” he added, referring to Grover Norquist’s demand that taxes never increase on any American.
The JEC report, which is based mostly on data from the nonpartisan Tax Policy Center, uses a current law baseline, assuming the expiration of the Bush tax cuts, to make its calculations. Under a current policy baseline where those tax cuts get extended, the calculations look even worse. Though Republicans have objected to a report designed by Democratic Senate staff, the Tax Policy Center has basically blessed the numbers:
Roberton Williams, a senior fellow at the Tax Policy Center, reviewed the Joint Economic Committee report. Although the numbers are rough, he said, the conclusions are largely accurate.
“Even with eliminating fairly major tax preferences, the Ryan tax plan remains regressive. That’s the bottom line,” he said. “Unless you go after the tax preferences that benefit the wealthy” — capital gains, dividends, tax-free interest on municipal bonds — “it’s really hard to undo the regressivity of the rate changes. You’ll be shifting the burden of the tax code toward the middle class.”
“The Ryan plan doles out tax cuts for the wealthy and asks the middle class to pick up the bill,” Casey said in a statement. “To pay for his tax cuts, Chairman Ryan has no choice but to eliminate or drastically reduce tax benefits that help middle-class families meet their health care needs, pay for their homes, and save for their retirement.”
So far, the impact to the middle class of drastically reducing taxes and covering that up by eliminating almost all deductions has not been part of the discussion in Washington. Schumer hopes this report will change that. “Romney has been so vague, and so has Ryan,” he said. “This report pulls up the skirts, and it will help change the debate.”
Of course, before we even get to this aspirational tax goal from Republicans, we have the fight over the Bush-era tax rates to contend with. Extending the Bush tax cuts again would not lead to net increases in middle class rates over time, but it would reduce federal revenues by as much as the Ryan plan. And it would similarly convey the benefits upward, to the rich, at the expense of the middle class who are not sharing in those benefits. The only difference from the Ryan plan is that it’s just a softer version of that. And yet several Senate Democrats aren’t ruling out extending those tax cuts for the top rates.