'Gang of Six' Comes Out With Deficit Reduction Plan

[Frodo]

From Politico:

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[TerroristFistJab]

finally the pragmatists have arrived.

[CultureKing]

Couldn't we just keep the Alternative Minimum Tax and reduce the deficit another $1.7 trillion?!?

[Badger]

"Deficit Reduction Plan" + "$1.5 Trillion tax decrease" =

Wake me when congressional Republicans learn basic arithmetic.

[memphis]

"Deficit Reduction Plan" + "$1.5 Trillion tax decrease" =

Wake me when congressional Republicans learn basic arithmetic.

^^^^^^^^^^^^
Not like anybody enjoys taxes, but you can't be all holier than thou about debt and constantly seek to end revenue for the government. They are mutually exclusive.

[The Vorlon]

I obviously want to see the details, and make sure the spending reductions are real and not smoke and mirrors.

That being said, Tom Coburn has got some real stones and has earned some credibility on this issue.  If he has signed off, we should at least take a look at it.

[Bull Moose Base]

No time to do it now.  Maybe later but it'll be McConnell-Reid for now.

[🐒Gods of Prosperity🔱🐲💸]

"Deficit Reduction Plan" + "$1.5 Trillion tax decrease" =

Wake me when congressional Republicans learn basic arithmetic.

Conrad, Warner and Durbin are Republicans now?
alright, we'll take them

[Lief 🗽]

That being said, Tom Coburn has got some real stones and has earned some credibility on this issue.

HAHAHAHAHAHAH, oh man. Good one. No, no one who supports the Bush tax cuts has any credibility on this issue. At all. Other than the recession, they are the number one reason we are in this mess in the first place.

[Torie]

Is this at all dissimilar from what a majority of the Deficit Commission recommended?  It seems to follow that template from what little I know, with some procedural tweaks. Anyone sensible "knew" that this is where this puppy would probably end up - sooner or later.

[Gustaf]

"Deficit Reduction Plan" + "$1.5 Trillion tax decrease" =

Wake me when congressional Republicans learn basic arithmetic.

^^^^^^^^^^^^
Not like anybody enjoys taxes, but you can't be all holier than thou about debt and constantly seek to end revenue for the government. They are mutually exclusive.

That's actually not necesarily true. From what the article said, it seems like the proposal is to simplify the tax code while cutting some rates. That can often be done without any fall in revenue. I don't know enough about the details here to know if such is the case, but it is at least possible.

[Lief 🗽]

Ezra Klein's write up is, as always, pretty good: http://www.washingtonpost.com/blogs/ezra-klein/post/the-gang-of-sixs-plan-better-than-were-likely-to-do-otherwise/2011/07/19/gIQAXjZROI_blog.html?wpisrc=nl_wonk

[Gustaf]

Wait, am I understanding the smoke and mirrors correctly here? Is the whole idea that they can claim a tax-cut by comparing with after the expiration of the Bush tax-cuts while at the same time increasing revenue by letting them expire?

[anvi]

I think it's a narrative sleight of hand designed to make it easier to sell to House Republicans and their constituents.  What you can tell them, as I understand Klein's story here, is that if you compare the downward adjustment in marginal tax rates being proposed by the bill to the Bush tax cuts the upper brackets get now, the upper brackets, with the rate adjustments, would get a $1.5 trillion tax cut, $1.5 trillion more than they get under the Bush cuts, over the next ten years.  

But, in actuality, if you adjust the rates, broaden the tax base, and eliminate deductions and loopholes, you can raise $1 trillion more in revenue over the same next ten years.  Plus, if you eliminate the Bush tax cuts on top of that, which the proposal seems to suggest doing, you might be able to raise $2 trillion more in revenue.

So, by lowering the marginal rates, you can as a GOP House member brag to your constituents that you helped massively cut taxes.  At the same time, by adjusting the rates, you can generate much more tax revenue than the government currently takes in.

The story you get to tell as a politician always depends on which numbers you choose to compare, and which you choose not to.       

[Torie]

From Klein:

"But though some of that money is going to lower brackets, the reforms must raise more than $1 trillion in new revenue — including $133 billion for infrastructure. The plan also appears to build the expiration of the Bush tax cuts for income over $250,000 into the baseline. So the total amount of revenue raised might be closer to $2 trillion, if you're counting against where we are now. Of course, if you count against the expiration of the Bush tax cuts, it's a tax cut of about $1.5 trillion. Finally, the plan also calls for revenue-neutral corporate tax reform."

So if the revenue raised is 2 trillion, but if the Bush tax cuts for those with income over 250K are assumed to expire, then it is a tax cut of 1.5 trillion, we have a 3.5 trillion swing in revenues.  Are the Bush tax cuts for those earning over 250K worth 350 billion per year over 10 years in lost revenue?  That is hard to believe. Am I missing something here?

[opebo]

Not like anybody enjoys taxes...

Not so - I very much enjoy taxes, because they take money away from the privileged.  And of course taxes on the top echelons of the social hierarchy are positively orgasmic.

[Gustaf]

Not like anybody enjoys taxes...

Not so - I very much enjoy taxes, because they take money away from the privileged.  And of course taxes on the top echelons of the social hierarchy are positively orgasmic.

Won't that diminish your inheritance?

[anvi]

Here is an article that tries to clarify the confusing language about tax revenues and tax cuts in Congressional public statements and the Klein article.

http://blogs.forbes.com/janetnovack/2011/07/20/how-much-would-gang-of-six-raise-your-taxes/

[Torie]

Here is an article that tries to clarify the confusing language about tax revenues and tax cuts in Congressional public statements and the Klein article.

http://blogs.forbes.com/janetnovack/2011/07/20/how-much-would-gang-of-six-raise-your-taxes/

It seems to be close to a 2 trillion tax increase from a baseline that includes future tax "cuts" that Democrats tend to support, so it is about 50% spending cuts and 50% revenue increases from a baseline that includes cuts from existing law that Democrats support. I am a bit surprised that the 3 Pubbies in the gang of 6 went along with it. The dirty little secret though is that polls are showing that a majority of Americans don't want any cuts in entitlements, so in that sense the Pubbies are boxed, in that in order to avoid a short term hit politically, they need the Dems to sign off on some entitlement cuts.

There is no right or wrong answer to this at the margins. It is a question of priorities and values. The key is however to do it in a way that does not materially truncate future American economic growth, which would be the worst result of all for a host of reasons. The lowering of the tax rates should however accomplish that.  

Reality is a bitch.  And given the aging of the population, longer life spans, and the decline in the competitiveness of the American work force going forward due to our non competitive secondary school educational system, and facing a loss of the prop of talented immigrants going forward as they fine good opportunities now in their home nations more and more, the die I think is somewhat cast. One can kick and scream that it all sucks, but in the end, it will amount to but a fart in a windstorm.

Thanks Anvik for finding the article. It is still a bit confusing, and did not totally connect the dots to my mind as to what is really going on, but it moves the ball forward. I suspect this will set off a war within the GOP. Some elements are going to have a fit.  

[King]

Not like anybody enjoys taxes...

Not so - I very much enjoy taxes, because they take money away from the privileged.  And of course taxes on the top echelons of the social hierarchy are positively orgasmic.

Won't that diminish your inheritance?

Estate tax is a one time fee.

[○∙◄☻¥tπ[╪AV┼cVê└]

I give Obama the grade of F- for his messaging on this issue.

[Gustaf]

Not like anybody enjoys taxes...

Not so - I very much enjoy taxes, because they take money away from the privileged.  And of course taxes on the top echelons of the social hierarchy are positively orgasmic.

Won't that diminish your inheritance?

Estate tax is a one time fee.

I'm not talking about the estate tax - taxes paid now by his wealthy family will diminish his future inheritance. Presumably, it would also make them less likely to give him money now.

[opebo]

...given the aging of the population, longer life spans, and the decline in the competitiveness of the American work force going forward due to our non competitive secondary school educational system...

Ha ha, blaming the plumber for the existence of sh**t.

[anvi]

Torie,

From what I can gather out of the Novack article, the alternatives of whether the Gang of Six proposal raises revenues by $1.2 trillion or whether it cuts taxes by $1.5 trillion depends on which CBO baseline is being used.

When Conrad says the proposal will cut taxes by $1.5 trillion, the projection assumes that the Alternative Minimum Tax fix expires at the end of 2011 and all the Bush tax cuts (for all brackets) expires at the end of 2012. In other words, the projection is based on the assumption that no changes to current tax law will be enacted by Congress in the next year and a half, or the eight and a half years after that.   If that were the assumption, that is, thet everyone's taxes would go up dramatically over the next decade, then the downward adjusted rates and the closed deductions and loopholes in the Gang of Six proposal would, in comparison to that, constitute a $1.5 trillion tax cut.

The thing is that this first scenario is not very "plausible."  According to a second baseline the CBO uses, over the next decade, the Alternative Minimum Tax fix continues and the Bush tax cuts, though they do expire for the top 2.5%, are continued for everyone else.  (By the way, I've read in several other places that the Bush tax cuts for the top 2% of income earners over the next ten years translates into approximately $690 billion.)  This baseline also assumes a $3.5 million estate tax exemption.  (I think your characterization is correct that this second baseline is grounded in tax changes in the next year and a half that the Democrats would otherwise like to see, since the Pubbies don't want the Bush tax cuts for the top 2.5% to expire, and they want a $5 million exemption in the estate tax.)  Compared to this second baseline, the Gang of Six proposal, adjusting marginal rates for each bracket and closing loopholes and ending deductions, raises something like $1.2 trillion in revenue over the next ten years.

So, the different projections assume two different baselines.  The "tax cut" scenario assumes a baseline where no current tax laws, including upcoming expirations, are changed for the next ten years.  The "revenue raising" scenario assumes a baseline where certain anticipated tax adjustments to current tax law are assumed.  The trick is, and it is a trick, that the first baseline is not at all likely, and so the idea that the Gang of Six proposal will constitute a $1.5 trillion tax cut is probably being pitched as a narrative to House Republicans and their constituents who otherwise would not want to vote for the package.  One could argue, I suppose, that there is also a narrative pitch in this for Democrats, since the "revenue-raising" scenario is meant to prove to the Dems that the Gang of Six bracket adjustments will raise more money for the government over the next decade then just letting top-bracket Bush tax cuts expire and getting the estate tax exemption they want.  In any case, I suspect you are right that it will provoke some fights within the GOP.  Early indications are already that a critical mass of House Republicans are not willing to vote for this package.

As far as the ratio of spending cuts to revenue enhancements, the figure I've heard associated with the Gang of Six proposal is 74%-26% (about $3.7 trillion in spending cuts to about $1.5 trillion in revenue enhancements).  

These spending cuts apparently come from an immediate package of $500 billion in savings from capping discretionary programs, freezing federal wages, adjusting the inflation rate indicators for Social Security on a phased-in basis, among other things.  The rest of the spending cuts are derived from targets that the government is supposed to use to determine which specific cuts will take place over the next decade.  But, of course, the proposal contains targets for the spending cuts that are to be worked out by congressional committees after the first $500 billion is shaved off, so who knows whether these targets will actually be met?

Signals from the House GOP right now are that the Gang of Six plan is DOA.  It's hard to know at this early stage whether they're trying to get leverage to ask for more adjustments to the Gang of Six proposal or whether they're just not going to vote for anything like it.  My money right now is on we'll get something like the McConnell-Reid proposal, and the whole thing will be made into a campaign issue while we continue to kick the can down the road, or in this case, maybe more accurately, push the snowball down the hill.  It's like the old saying goes, our politicians "never miss an opportunity to miss an opportunity."  

[Antonio the Sixth]

So basically the democrats gave up on everything. Awesome.