Simpson-Bowles Plan Is a $5 Trillion Net Tax Hike in First Full Decade


Posted by Ryan Ellis on Friday, October 5th, 2012, 1:30 PM PERMALINK


-Simpson-Bowles targets permanently higher taxes.  According to the Simpson-Bowles co-chair report, the revenue target of their proposal is to “cap revenue at or below 21 percent of GDP.”

-The Simpson-Bowles revenue target is much higher than the historical average. Using historical data either from CBO or OMB, it’s clear that the historical tax revenue burden is closer to 18.5 percent of GDP.

-Simpson-Bowles is a $5 trillion net tax hike relative to historical tax levels.  If Simpson-Bowles’ revenue target was in place for the whole next decade, it would raise $5 trillion more in tax revenue than if historical revenue levels were in place for the whole next decade.

--Because we’re not currently collecting the historical tax revenue level, even the above $5 trillion number underestimates the tax hike in the Simpson-Bowles plan.  Due to the worst economic recovery since World War II, tax revenues are under-performing their historical average.  According to CBO, federal tax revenues in 2012 will come in at just 15.7 percent of GDP. The gap between this figure and the historical average is $450 billion. This “bridge” can reasonably be added to the $5 trillion tax hike total of the Simpson-Bowles plan relative to the historical average.

-This stands in stark contrast to the House GOP budget, which keeps revenues in their historical band of 18-19 percent of GDP.  The House GOP budget also calls for fundamental tax reform, with a top rate no higher than 25 percent, and a move to a territorial – rather than a “worldwide” – tax system.

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