The House Progressive Budget

at 09:29 AM ET, 04/25/2011


(Andrew Harrer - Bloomberg)
Here’s how Michael Pollan might describe the budget proposal released by the House Progressive Caucus: Uses taxes. Mostly on the rich. Perhaps too many.

The legislation would let most of the Bush tax cuts expire — a major difference from Obama’s budget, which would extend most of the Bush tax cuts — and add a few new brackets for millionaires and multimillionaires, not to mention a stronger and more progressive estate tax. Capital gains and dividend income would be taxed as normal income, corporate taxes would be raised, and a financial transaction tax would be passed. The payroll cap would be raised on the employee side and abolished on the employer side, taking care of most of Social Security’s shortfall, and the Defense Department would see $1.8 trillion in cuts over 10 years. There’d be a public option added to the health-care system and Medicare would get more power to negotiate drug prices. There’s room for $1.4 trillion in new investments, and according to the HPC’s numbers, their budget does more deficit reduction over the next 10 years than either Obama or Ryan’s budget. Paul Krugman calls it “the only major budget proposal out there offering a plausible path to balancing the budget.”

So does it all add up? Sort of, said the experts I consulted. “In the same way that Ryan’s plan is useful for showing how you could do this/what one would have to do on if you do it all on the spending side,” says William Gale, co-director of the Tax Policy Center, “the House Progressive Budget shows how one might do this/what one would have to do to do almost all of it on the tax side of the ledger.” Gale thought their proposal probably went a bit far in new upper-income taxes, and treating capital gains as normal income might erect a barrier to investment. It would have been wiser, he thought, to be even a bit bolder in terms of new taxes and propose either an energy tax or a value-added tax. “Still,” he said, “I think it would be interesting to get this plan out in front of the American people and see how they react to it versus Ryan.”

Len Burman, who previously led the Treasury’s tax analysis division and is now at Syracuse University and the Urban Institute, had a broadly similar, though slightly more negative, take. “Glad to see more progressivity, but there’s little real tax reform and really, really high tax rates on high-income people,” he says. “I doubt that many capital gains would be realized at a 49% tax rate (or even a 45% one).” He worried that the various provisions would lead to a large increase in tax evasion strategies, including more self-employment, gifts, an increase in C corporations and a lot more offshore financial dealings. He thought that once you added all that in — and particularly once you considered the way the various taxes would stack and interact — the plan would raise less money than the House Progressive Caucus assumed. “I wish they’d thought more about simplification and reforming the tax expenditures that they retain,” he said. “The plan could have been made more progressive and raised more revenue without raising top tax rates.” He suggested looking at the Bipartisan Policy Center’s plan for a model of how to do a lot more tax reform while raising revenues.

Robert Frank, an economist at Cornell University, is one of the more innovative tax thinkers I know. In particular, I’ve always been partial to his proposal for a progressive consumption tax (pdf). So I ran the plan by him, as well. “The progressive budget proposal is of course an enormous improvement over the bizarre Ryan budget,” he said, “which for all its chest thumping about facing up to the hard choices, does nothing — absolutely nothing — to reduce long-run deficits.” But like Gale and Burman, Frank wanted to see more simplification and reform. In particular, he wanted more attention given to what we tax with an eye toward two-fers: raising more money off of things we want less of. “When we enter congested roadways, or buy heavy vehicles, or drink to excess, or emit CO2 into the air, we impose costs on others,” he says. “Taxing such activities kills two birds with one stone: It generates much needed revenue, and it curtails activities that cause more harm than good. Because these taxes make the economic pie bigger, it makes no sense to object that we can’t afford them.” He recommended this piece (pdf) for more on those ideas.

So even if you were going to rely heavily on taxes, the particular set of taxes recommended by the House Progressive Caucus probably isn’t the set you’d rely on. But Burman, Gale and Frank all thought the proposal compared very favorably to Ryan’s budget. For one thing, its savings ramp up more quickly. Ryan puts his biggest reforms off until 2022. The House Progressive Budget begins almost immediately. For another, it tries to balance the budget in a largely progressive fashion — a worthwhile goal given that the current deficits are largely the product of the financial crisis and a set of tax cuts that were embarrassingly tilted toward upper-income Americans. The House Progressive Budget is also willing to make some deep changes in the Defense Department and block off some new money for much-needed investments. Gale noted that if you think of Ryan’s budget as one end of the spectrum and this budget as the other, Obama’s proposal is probably closer to Ryan’s than to the House Progressive Caucus’s.

I’d add that over the long-term, this budget isn’t particularly strong on health care. A public option would be helpful, and so too would letting Medicare bargain down the price of pharmaceuticals. But I’d have liked to see much more radical ideas for controlling health-care costs. As it is, this budget basically just includes the thing progressives wanted and didn’t get in the Medicare Prescription Drug Benefit and the thing progressives wanted and didn’t get in the Affordable Care Act.

But overall, this is a smart contribution to the negotiations, in part because it’s organized very intelligently. It’s a menu of separate — and separable — options for reducing the budget deficit in a progressive fashion, rather than one or two massive ideological efforts to remake the safety net. If Ryan had been writing the House Progressive Budget, it would’ve proposed single-payer health care and a value-added tax and called it a day. The House Progressive Caucus didn’t do that — and they were smart not to.

Instead, they designed their budget to make it easy for the negotiators to lift some of their proposals into a final deal. It’d be simple to grab the new millionaire’s brackets out of this budget, or snatch some the defense savings and the public option, without embracing everything else. That also makes it easy for progressives to choose a few of these items and really organize behind them. The measure of this budget’s success won’t be in whether it passes, but whether a few of its specific suggestions are able to shoulder their way into the conversation. To invert the old aphorism, the budget might not fully hang together, but its pieces could certainly survive separately.

 
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