Congressman Steve LaTourette (R-Ohio) and Jim Cooper (D-Tenn.) have introduced a budget resolution based off the Simpson-Bowles tax hike debt commission. Their budget resolution targets $4 trillion in reductions to the deficit through a combination of massive tax increases and modest spending cuts. Under reasonable accounting metrics, nearly 40% of this amount comes from tax increases, not spending cuts. Targeting deficits is the wrong metric--it's spending which should be the target, since tax hikers like Simpson-Bowles, President Obama, and this budget's authors can easily cut the deficit by raising taxes on American families and employers.
The budget claims new spending cuts that are already a part of current law. The plan ignores the cuts put in place by the August debt deal and claims them as savings.
By their own numbers, this budget raises taxes by $1.2 trillion. They do this by calling for a net income tax hike disguised as tax reform. In exchange for sharply curtailing income tax deductions and credits, their budget calls for the top tax rate to be lowered to between 23 and 29 percent. While this may sound like tax reform, it isn't. Even after this is accomplished, federal tax coffers are still swollen by at least an additional $1.2 trillion over the decade relative to a current policy baseline. This is a net tax hike disguised as fundamental tax reform, which is supposed to be a revenue-neutral exercise in cleaning up the tax code.
There are hundreds of billions in hidden tax hikes the authors don't admit to. The actual level of net tax increase is probably closer to $2 trillion. That's because there are several tax increases that their budget doesn't count in the $1.2 trillion figure. These include:
- Chained CPI. While this reduces government spending on programs like Social Security, it also slows down the rate at which tax brackets and other tax provisions grow with inflation. Estimated additional tax increase: $89 billion over ten years
- Social Security tax increase. The budget calls for an expansion in the Social Security taxable wage base, subjecting more small business profits and wages to Social Security taxes. Estimated additional tax increase: $77 billion over ten years
- Tax increases on employers who provide health insurance to their employees. Page 70 of the Simpson-Bowles-Cooper-LaTourette budget calls for a trigger to be pulled if the growth of the tax benefit for workplace health insurance plans grows by more than GDP-plus-1 percent. Estimated additional tax increase: unknown
- Interest savings due to tax increases. It's not fair to call savings on interest on the national debt "spending cuts" if they occur because of a net tax increase. Thus, some of the interest savings must be allocated to the tax hike side of the ledger to get a proper ratio. Interest savings derived from net tax hikes: $205 billion
Added together, the tax hike component of this budget is not $1.2 trillion, as the authors claim. It's actually much closer to $1.6 trillion. Tax increases represent about 37% of the balance of this budget resolution, for a ratio of 1.6 to 1 (spending cuts to tax hikes).
The only way to achieve these tax increases is to raise taxes on the middle class. Most of the tax benefits the authors want to target are basic, middle class tax provisions: the mortgage interest deduction, charitable contributions, employer-provided health insurance, 401(k) and other pension plans, etc. There is not some "magic grab bag" of tax deductions on "someone else" that can be used for this tax hike. Every middle class American would feel the squeeze. Just like President Obama, this budget calls for a middle class tax hike without having the guts to admit it.
The goal of this budget is to raise the long-run, durable tax revenue target to record levels. The Simpson-Bowles plan called for a federal tax revenue target of 21 percent of GDP. This would be a record, and unprecedented in American history. The Ryan budget, by contrast, calls for a long-run tax revenue target of 18-19 percent of GDP--right in line with the historical average. Congressmen committed to controlling the growth of federal spending and debt (which is fueled by ever-higher taxes) should oppose this budget.
The tax hike may be even bigger than $2 trillion. Back when the Simpson-Bowles report came out, Congressman Ryan said the actual tax increase was not $1 trillion, as the report claimed, but over $2 trillion. The Heritage Foundation said that the tax hike was closer to $3.3 trillion. Since this budget is based off of Simpson-Bowles, it's fair to question whether the authors have been honest with Members about the size of their net tax increase.
ATR supports fundamental tax reform, but this budget isn't that. Fundamental tax reform means "lower the rates, broaden the base." Any base broadening must be plowed into lower rates. To only partially lower rates means that the measure is no longer tax reform--it's a tax increase trying to trick people into thinking it's tax reform.
A vote for the Simpson-Bowles budget is a vote against taxpayers. 238 Members of the House have signed the Taxpayer Protection Pledge. They have promised to do the opposite of what this budget calls for. This budget calls for a net tax increase on middle class families and small businesses. Voting for this tax hike budget would be breaking faith with the constituents who voted for Members after they assured them that tax hikes would be off the table. This budget will fail, and it deserves to fail.