A reality check on taxes and spending
posted at 4:55 pm on May 31, 2012 by Dustin Siggins
House Minority Leader Nancy Pelosi’s proposal to extend President Bush’s income tax cuts for households making up to $1 million a year would lose nearly half of the revenue that President Obama’s proposal to extend the tax cuts only for households making up to $250,000 would raise, according to new estimates from Congress’ Joint Committee on Taxation (JCT). The higher threshold would raise 44 percent — or $366 billion — less in revenue over the coming decade than the lower threshold. Citizens for Tax Justice has released estimates showing a virtually identical percentage revenue loss.
I commented on Pelosi’s proposal last week, but think this report adds further clarity to the mess that are Congress’ tax and budget priorities. Two points in particular:
First, the Center says that if Congress wants to “stabilize” our debt, we need to cut $3 trillion over the next ten years from expected deficits, in addition to what was initiated in the Budget Control Act. However, this is not likely to come from the politically risky 50-plus percent of the budget. From the report:
Achieving this $3 trillion in additional savings solely on the spending side of the budget would require enormous cuts. The impact would be particularly severe given that they would largely have to come from just half of the budget. Consider the following:
- Both parties have signaled that they will make no changes to Social Security that affect current retirees or those nearing retirement (with the possible exception of modifying the inflation index that is used to make annual cost-of-living adjustments, which would yield relatively small savings in the initial decade).
- Big additional near-term Medicare savings, beyond those enacted as part of health reform, are unlikely. Even the radical Medicare changes that some have proposed, such as House Budget Committee Chairman Paul Ryan’s “premium support” proposal, would not take effect until 2023.
- Policymakers are highly unlikely to cut defense spending below the levels set by the BCA caps, particularly since many policymakers are calling for increases above those cap levels.
Personally, I think $4 trillion in deficit reduction over ten years is less than half of what we need in deficit reduction efforts, and the Center is wrong to assume cost savings in the PPACA. However, those are debates for another day. The fact is that Medicare, Social Security and defense spending are approximately 54% of the budget, and when you add in interest payments on the debt this takes over two-thirds of the budget off the table for cuts. We could literally cut every dollar except for this two-thirds and perhaps barely balance our budget. Perhaps. If we were to be lucky.
Second, for all the talk about cutting the deficit by raising taxes, $463 billion and $829 billion are somewhat small numbers compared to our future spending. The Congressional Budget Office expects over $44 trillion in spending over the next ten years in its baseline budgeting calculations, and this assumes relatively significant Medicare, defense and other spending reductions that Congress is unlikely to allow to go into effect. I would guess that without Doc Fix, Budget Control Act, PPACA and other deficit reduction measures actually being enacted, our spending will actually be closer to $47 to $50 trillion.
Either way, $829 billion is a tiny fraction of what we are going to spend – 1.88% of $44 trillion, to be exact. $463 billion is 1.05% of $44 trillion. Yet the CBPP’s report pretends the difference is critical to America’s financial future. The math would be laughable, if it wasn’t a harbinger of our nation’s coming fiscal collapse.
If we want to talk about real, substantive tax reform, why don’t conservatives just hold the line and demand the elimination of a few hundred billion in annual loopholes and lower rates equivalently? Or compromise and lower rates a bit while putting the extra revenue from eliminated loopholes directly to deficit reduction? Either plan would combine economic fairness with a faster-growing economy, and therefore yield higher tax revenues for the federal government. Liberals would get more money from the taxpayers for deficit reduction, conservatives would get a faster-growing economy for deficit reduction and taxpayers would be making more income instead of watching savings whittle away as unemployment stays above eight percent.
Or we can just keep watching Congress play games with the nation’s future.