Here’s the first thing you need to know about Paul Ryan’s budget, which was released this morning: Ryan appears to have shrewdly taken two important steps that allow him to avoid the political pitfalls that bedeviled Mitt Romney’s campaign tax plans last year. In so doing, he has made it impossible to determine whether his budget would raise taxes on the middle class to pay for tax cuts on the rich — as experts claimed about the Romney plan.
This comes by way of Roberton Williams, a senior tax expert at the nonpartisan Tax Policy Center — the same outfit, you may recall, that set off a bomb during Campaign 2012 by demonstrating that there was no way Romney’s tax plan could pay for itself without targeting some middle class loopholes.
Romney’s tax plan cut taxes across the board by 20 percent, hugely and disproportionately benefiting the rich — and paid for it by promising to close unspecified loopholes. But the Tax Policy Center found that even if you eliminated all the loopholes and deductions enjoyed by the rich, you still wouldn’t have enough to offset the costs of the tax cuts. So you’d have to hit some middle class loopholes to keep the plan’s promise of revenue neutrality — offsetting the tax cuts enjoyed by the middle class, and then some, meaning a tax hike for them.
Ryan’s new plan consolidates all tax brackets into two. It sets a target of cutting the top tax rate for individuals to 25 percent — a bigger tax cut for the top than in the Romney plan — and sets the other bracket at 10 percent. It cuts the corporate tax rate to 25 percent. The plan would be made revenue neutral through tax reform, by closing loopholes, but it doesn’t say which ones, noting that this work will be left to the House Ways and Means Committee.
But the key here is that the plan does not say definitively that the top rate would be 25 percent; it only says that this is a “goal.” What’s more, the plan says nothing about what it would do with rates on capital gains and dividends. During the campaign, Mitt Romney and Ryan suggested they would not raise rates on those. The new Ryan plan doesn’t specify one way or the other.
There is an apparent method to leaving these two things vague. It makes it impossible to say whether the plan can be paid for without targeting loopholes enjoyed by the middle class. According to the Tax Policy Center’s Williams, without this information, it’s impossible to say whether the plan’s stated goals are feasible.
“The plan essentially says, `here are the big parameters; now you go figure it out,’” Williams says.
Now, it is possible that the plan could be made revenue neutral without targeting middle class loopholes. But according to Williams, based on what little we know now about how the tax cuts would be structured, to make that work, you probably would not be able to cut the top rate to 25 percent. And you probably would have to raise rates on capital gains and dividends. But we don’t know what the plan would do on either front, so it’s impossible to judge it.
Ryan and Republicans, of course, will insist that they would cut taxes for the middle class, just as Romney did during the campaign. But there’s no way — as during 2012 — to know whether this is feasible until the plan’s details and targets are nailed down with more specificity.
And so, in yet another sense, we’re back where we were during the 2012 campaign. Indeed, we’ve reverted somewhat. At least we could determine whether Romney’s proposed tax cuts for the rich could be paid for without targeting the middle class — they couldn’t. In the case of the new Ryan budget, it cuts taxes on the rich, and vows to pay for it through tax reform — but it’s impossible to say, based on what we know now, whether this can be done without targeting the middle class.
Good thing we had an election to sort all this stuff out.