The fiscal year (FY) 2013 budgets proposed by the House Congressional Progressive Caucus (CPC) and Rep. Paul Ryan (R-WI), Chair of the House Budget Committee, are perfect examples of the fact that budgets are about choices. The revenue proposals in each serve as a study of opposites. Where the Ryan budget would double down on the Bush tax cuts and provide huge windfalls to the country’s wealthiest, the CPC’s proposal – The Budget for All – would ask those with the most wealth to help fund important investments in our public structures.
For individual taxpayers, Ryan proposes reducing the top income tax rate from 35 percent to 25 percent and would condense the other five tax rates into one bracket of 10 percent. The plan does not reveal the incomes that would be subject to the different tax rates, but it’s clear the wealthiest would receive a sizeable tax break. These tax cuts for the rich would be added to the Bush tax cuts, which would be made permanent under Ryan's plan.
Ryan also proposes eliminating the Alternative Minimum Tax (AMT), as well as the Affordable Care Act’s (ACA) increase in the Medicare tax for high-income individuals. As the Center on Budget and Policy Priorities (CBPP) recently noted, "New analysis by the Urban-Brookings Tax Policy Center (TPC) finds that people earning more than $1 million a year would receive $265,000 apiece in new tax cuts, on average, on top of the $129,000 they would receive from the Ryan budget’s extension of President Bush’s tax cuts." TPC also estimates that these tax code changes would provide millionaires a 12.5 percent bump in after-tax income, which is six times the 1.9 percent increase most middle-income families would realize.
Ryan’s individual tax proposals would almost surely exacerbate an already increasing income inequality gap, as CBPP summarizes:
The best gauge of the distributional impact of a tax cut is the percentage changes that it causes in the after-tax incomes of households at different income levels. A progressive tax cut raises after-tax incomes by a greater percentage among lower- and middle-income people than among higher-income people. A regressive tax cut provides a larger percentage after-tax income gain at the top of the income scale and thereby widens income inequality.
On the corporate tax side, Ryan proposes to reduce the tax rate from 35 percent to 25 percent and convert the corporate tax code to a “territorial” system. Ryan also stipulates that he would close certain loopholes within the tax code to help pay for the rate reduction, but the congressional Joint Committee on Taxation (JCT) recently estimated that Congress could not lower the tax rate below 28 percent without losing revenue even if it eliminated every corporate loophole in the code. Similarly, a territorial tax system, which taxes only corporate profits generated in the United States, would only encourage companies, according to Citizens for Tax Justice (CTJ), to move their activities offshore, hurting job growth and costing the government tens of billions of dollars in revenue each year.
The total cost of Ryan’s revenue proposals – which would slash tax rates, abolish four tax brackets, eliminate the AMT, and lower the corporate tax rate without specifying any offsets – could run as high as $4.5 trillion over the next decade. Ryan would make up for much of this reduction in revenues by slashing government spending on infrastructure, public safety, and programs for low-income families, specifically turning SNAP (formerly known as Food Stamps) and Medicaid into block grant programs and sharply reducing their funding over the next decade.
In contrast, the House Progressives’ Budget for All proposal would allow the top two individual income tax rates of 35 and 33 percent to return to their Clinton-era levels of 39.6 and 36 percent, respectively. The CPC proposal would also wait until 2017 and 2019, when the economy would presumably be much stronger, to allow the next two Bush tax cut rates of 28 and 25 percent to expire and return their Clinton-era levels of 30.5 and 27.5 percent, respectively. The Progressive budget would permanently extend the 10 percent bracket that affects the vast majority of low-income families.
Importantly, the CPC budget would also extend the refundable tax credits expansion enacted under the Recovery Act, such as the Earned Income Tax Credit (EITC), the Child and Dependent Care Credit, and the American Opportunity Tax Credit, which helps low-income households afford college. House Progressives also propose indexing the AMT to inflation, thereby eliminating the annual need for Congress to “patch” the hole that sucks in middle-income families.
To raise revenues, the CPC budget would add five new income tax rates to the top of the bracket scale: 45, 46, 47, 48, and 49 percent. These rates would only affect those making millions and billions of dollars each year. House Progressives would also tax capital gains and dividends as ordinary income, enact a tax on some financial transactions, and limit itemized deductions to 28 percent of high-income households’ earnings. Combined, these proposals would help pay for $2.9 trillion worth of investments in public structures and job creation over the next decade.
With respect to the corporate tax code, the CPC budget eliminates taxpayer subsidies to oil, gas, and coal interests; reinstates Superfund taxes to help pay for environmental cleanup efforts; and enacts a financial crisis responsibility fee to make sure that those financial firms that helped cause the economic collapse of 2008 help pay for the assistance to average Americans that the government had to provide in the Great Recession's wake. The Progressives’ budget also eliminates most loopholes in the corporate tax code and imposes a tax on carbon emissions while providing rebates for low- and middle-income families to defray the increased cost of energy.
These two different proposals have dramatically different impacts on the national deficit over the next 10 years. The Ryan budget would generate a deficit of $797 billion in FY 2013, about $240 billion lower than the projected deficit for the CPC’s budget at that point in time; by FY 2022, the relationship is inversed, with the CPC budget resulting in a $180 billion deficit, compared to the Ryan budget’s $287 billion.
While the Ryan budget provides outsized tax cuts to the wealthiest while slashing spending on government services used by low- and middle-income families, the House Progressives’ budget requires a little more of those who can afford it to make important investments in our nation’s public structures. Congress could choose to enact a budget that causes little to no pain to the vast majority of our nation’s families while addressing long-term budget deficits, and Congress could responsibly raise the revenue desperately needed for improvements in infrastructure, education, and public safety at the same time. The House Progressive Caucus provides a blueprint for how to do so.