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June 20, 2012 4:36 PM Study Shows 2 Plus 2 Does Not Equal 5

By Ed Kilgore

As informed readers know, the big game associated with Republican tax plans is for GOP solons to keep a straight face while asserting they can have big cuts in upper-end income tax rates without exploding the deficit or shifting the tax burden sharply towards middle-income Americans. The magic asterisk in their plans that keeps the mask at least partially in place is the promise that they will eventually identify and eliminate “tax loopholes” that will offset the revenue losses and avoid a big windfall for the rich that will have to be made up by everyone else. It’s “magic” not only because it’s so unspecific (and thus politically painless) but because the really big “loopholes” like the mortgage interest deduction benefit the middle class—and particularly the upper-middle class—a great deal.

Today the Joint Economic Committee (which Democrats currently control) released a study of the House GOP tax plan drawing out the implications of this relatively simple arithmetic, as reported by WaPo’s Lori Montgomery:

[A]lthough households earning $100,000 to $200,000 a year would save about $7,000 from the lower tax rates in the GOP plan, those savings would be swamped by eliminating major deductions, according to the report by the Democratically controlled congressional Joint Economic Committee.
The net result: Married couples in that income range would pay an additional $2,700 annually to the Internal Revenue Service, on top of the tax increases that are scheduled to hit every American household when the George W. Bush-era cuts expire at the end of the year.
Households earning more than $1 million a year, meanwhile, could see a net tax cut of about $300,000 annually.

The reason is very simple: big cuts in tax rates, even if they are across-the-board, disproportionately benefit high earners. The (relative) progressivity of the income tax system makes these kind of changes aggressively regressive, if you will pardon the expression.

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.”

Republicans are not, of course, about to go after tax breaks for investment income, which are very close to their holy-of-holies.

Keep in mind that we’re only talking about the revenue side of the Ryan Budget here. The impact of his spending plans would obviously be regressive in the extreme, with the impact concentrated on those at or near the bottom of the income scale. GOPers have magic asterisks for many of these proposals as well: big cuts in nondefense discretionary spending that aren’t spelled out in detail; the voucher system for Medicare that makes gradually expanding future benefit cuts less visible; the block-granting of Medicaid that makes the inevitable, devastating eligibility and coverage reductions technically somebody else’s problem. But all the magic in the world cannot repeal the laws of arithmetic.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • J on June 20, 2012 5:09 PM:

    I understand Obama is scheduled to speak at the annual hispanic conference tomorrow. Surprise - Romney is going to, with his mentor Rubio.
    I'm sure he will explain to all present why he wants the Arizona 1070 law as a model for the country, why he would veto the dream act and why he attacked Perry for giving hispanics in-state tuition, also why he wants them to self deport.
    On the other hand Mittens could be Mittens and lie.

  • Mitt's Magic Underpants on June 20, 2012 5:22 PM:

    The "liberal" media will call them out for their BS claims, right? Right?

  • Kathryn on June 20, 2012 6:26 PM:

    I hope Obama speaks last

  • Ron Byers on June 20, 2012 7:19 PM:

    I read the report. It should be mandatory reading for everybody in the media. The Ryan plan changes America in fundamental ways both surprising and dangerous. Ways I am sure most people would not approve if the plan was properly explained by the "liberal media."

  • Doug on June 20, 2012 9:24 PM:

    But, but, Republicans are against ANY increase in taxes! Right?
    Riiight...