Wonkbook: What counts as a tax increase?

at 07:59 AM ET, 11/09/2011

At this point, diligent readers of Wonkbook know the numbers: The Bush tax cuts have cost about $2 trillion since their passage, and will cost another $3.7 trillion if extended for another 10 years. And that's before you count interest on all the new debt that will rack up. But they have a hidden cost, too. They make it almost impossible for Republicans and Democrats to agree on what to do over the deficit.


Taxpayers search through tax forms in Illinois in April 2010. (Seth Perlman - AP)
The problem is that until the future of the tax cuts are decided, it's almost impossible to say what is and isn't a tax increase. Last night, for instance, the Supercommittee's Republicans offered a deal that included $300 billion in tax increases. Lori Montgomery reports that Republican aides called this a “significant concession.” But to Democrats, it looked like just another tax cut. The terms of the deal included permanently extending the Bush tax cuts. So the real math wasn't +$300 billion in taxes, but +$300 billion in taxes -$3.7 trillion in tax cuts. The net tax cut, then, is $3.4 trillion or so.

Of course, Democrats play this game too. They don't use the expiration of the Bush tax cuts as their baseline, even though that's what the law currently says will happen. They use the expiration of the high-income tax cuts as their baseline. So though President Obama's September budget proposal claimed to raise about $1.5 trillion in taxes, it was really raising the $800 billion from letting the tax cuts for the rich expire, another $750 billion in assorted other tax increases, but making the remaining $3 trillion of the Bush tax cuts permanent. Net effect on the budget? A $1.5 trillion tax cut.

The end result is that all these budget conversations are bedeviled by tax math that's anything but simple. First there's the question of what Republicans consider a tax increase, which is anything above the rates Americans are paying right now. That's how they can say their supercommittee proposal would raise taxes. Then there's what Democrats consider a tax increase, which is anything equal to or above letting the Bush tax cuts for income over $250,000 expire. That's how the White House can say their recent deficit-reduction plans increase taxes. Then there's what the Congressional Budget Office will score as increasing taxes and reducing the budget deficit, which is only a plan that increases taxes by more than the $3.7 trillion they're currently scheduled to increase when the Bush tax cuts theoretically expire in 2012. Just one more legacy of the Bush tax cuts, and the confused way Washington has dealt with them.

Top stories

1) Supercommittee Democrats have rejected Republicans' tax offer, reports Lori Montgomery: "Congressional Republicans have for the first time retreated from their hard-line stance against new taxes, offering to raise federal tax collections by nearly $300 billion over the next decade as part of a plan to tame the national debt. But Democrats rejected the offer Tuesday -- along with the notion that Republicans had made a significant concession that could end the long-standing political impasse -- leaving a special debt-reduction committee far from compromise with less than two weeks until its Thanksgiving deadline. Democrats said the tax increases in the GOP offer would be dwarfed by major new tax cuts for the nation’s wealthiest households, including a reduction in the top income tax rate from 35 percent to 28 percent."

2) Berlusconi is resigning, reports Anthony Faiola: "Embattled Prime Minister Silvio Berlusconi pledged Tuesday to resign after Parliament approves a key reform bill, potentially signaling the end of an era of flamboyant leadership in Italy that in recent days has fueled this nation’s slide toward a full-blown debt crisis. Berlusconi’s promise to step aside was conditioned on the approval of unpopular austerity measures. That could take weeks, after which Berlusconi could call early elections and possibly even run again...Investors have been rapidly losing faith in deeply indebted Italy, the world’s eighth-largest economy. They fear a catastrophic default here that could send shock waves through global markets. Berlusconi himself was widely seen as a big part of the credibility problem."

3) Ohio has repealed an anti-union law at the ballot box, reports Glenn Thrush: "Republican Gov. John Kasich warned Democrats that they needed to support a hard-edged anti-union law or get run over by 'the bus' -- but on Tuesday Ohio voters left serious tread marks on Kasich and, quite possibly, the national GOP. Unions hung a humbling defeat on Kasich, who has fast become his party’s poster boy for conservative overreach, by rolling back Senate Bill 5, a new collective bargaining law that bars public sector strikes, curtails bargaining rights for 360,000 public employees and scraps binding arbitration of management-labor disputes. Democrats in Ohio and labor leaders hailed the victory - a rare win for progressives after a 2010 GOP sweep here that saw the turnover of five Democratic congressional seats - as a harbinger of national renewal and the first step in recapturing a state that has long been a national presidential bellwether."

4) A conservative judge on the DC appeals court ruled health reform constitutional, reportsSarah Kliff: "The U.S. Court of Appeals for the District of Columbia Circuit has ruled the health reform law constitutional in a 2-1 decision, which you can read here. What’s more notable than the verdict, however, is its author. Justice Laurence Silberman, who wrote a full-throated defense of the health reform law, has a lengthy history of conservative legal thought. In the appeals court rulings so far, we’ve seen Republican appointees join an opinion upholding the health-care law and a Democratic appointee join an opinion striking parts of it down. But Silberman, appointed by President Ronald Reagan, is the first Republican appointee to actually author an opinion that finds the health reform law, and its mandated purchase of health insurance, constitutional."

Top op-eds

1) Europe's central bank is exacerbating the continent's crisis, writes John Quiggin: "Unlike any previous central bank in history, the bank has disclaimed any responsibility for the European financial system it effectively controls, or even for the viability of the euro as a currency. Instead, it has focused almost entirely on the formal objective of keeping inflation rates to a 2 percent target. And this brings us to the most crucial recent event: not the drama in Greece but the departure of Jean-Claude Trichet as the central bank’s president on Nov. 1. More than any other single person, Mr. Trichet has embodied the systemic failure of European financial institutions...In a desperate attempt to pretend that pre-crisis normality had returned, Mr. Trichet even raised interest rates in two steps, in response to marginal deviations from the central bank’s target inflation rate. This was the worst possible response to a debt crisis."

2) A college degree's value is declining, writes Peter Orszag: "Over the past 25 years, the effective global labor supply has at least doubled and by some estimates has quadrupled. This has suppressed wage growth in the developed economies and reduced the share of national income accruing to labor. So far, people without a college degree have primarily borne the consequences. As a result, globalization has widened the inequality between workers at the 90th percentile of wages and those at the 50th percentile. The effects of globalization are already moving up the wage scale, though, and that trend will likely continue...As a result, in the future, a college degree by itself will be less likely to guarantee a high wage. Ongoing economic globalization may even reduce the gap between the 90th percentile and 50th percentile, but continue to widen it between the 99.9th percentile and the 90th percentile."

3) The next five-year farm bill may already be a lost cause, writes Mark Bittman: "It’s the farm bill that largely shapes food and agriculture policy, and -- though much of it finances good programs -- ultimately supports the cynical, profit-at-any-cost food system that drives obesity, astronomical health care costs, ethanol-driven agriculture and more, creating further deficits while punishing the environment. The farm bill is written every five years. Although the current one doesn’t expire until September, the next one may be all but wrapped up by your first bite of turkey, because the leaders of the House and Senate agriculture committees -- a group of four, representing Oklahoma, Michigan, Minnesota and Kansas (do you see a pattern here?) -- are working feverishly to draw up a proposal in time to submit it to the supercommittee before the Nov. 23 deadline."

Nirvana interlude: A two cello cover of "Smells Like Teen Spirit".

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Still to come: Deficit reduction through cuts alone is difficult to pull off; Grover Norquist is actually defending health care reform; Obama wants tougher rules for Head Start funding; the administration has a new offshore drilling plan; and a baby reenacts classic films.

Economy

A CBO report suggests cuts-only deficit reduction would be difficult, reports David Rogers: "When all the brush is cleared, a new Congressional Budget Office report Tuesday shows that government spending flat-lined in the fiscal year that ended Sept. 30 -- leading to a modest dip in the deficit, thanks to an estimated $141 billion increase in federal receipts. It’s a turning point for which Republicans can take some credit. But the data highlights what’s also become the great arithmetic lesson for the GOP: Even if spending were frozen in place, the nation’s debt keeps piling up, absent more structural benefit reforms and tax revenue. Indeed as measured by CBO, 2011 was a year that saw spending trends break heavily in favor of deficit hawks. The combined federal outlays for Medicaid, Medicare and Social Security rose by a little more than 3 percent -- less than half of what had been the five-year average."

The administration is firmly against a financial transactions tax, reports Suzy Khimm: "The White House argues that there’s significant evidence that the tax could actually make the markets more volatile by reducing the volume of trade but encouraging 'bigger, more irregular financial transactions,' as one Financial Times columnist put it. Secondly, the Obama administration believes that a financial transactions tax would be easy to game by driving money offshore and creating shadow markets to hide transactions from tax authorities. In the administration’s view, a lot of ordinary investors would get hit, but sophisticated investors would avoid it...Finally, the administration points to a recent analysis by the European Commission showing that the European Union’s proposed tax would increase revenue but also have a 'small but non-trivial' impact on employment and GDP."

Fannie Mae needs $7.8 billion more from the government, reports Alan Zibel: "Fannie Mae said it would seek $7.8 billion more in U.S. government assistance after posting a wider loss in the third quarter as the housing market's troubles continued. The Washington-based mortgage finance company on Tuesday posted a net loss of $5.1 billion in the third quarter, compared with a year-ago loss of $1.3 billion. It was the 16th loss in the past 17 quarters for the company, which nearly failed more three years ago and has been kept on government life support ever since. The request for aid from the Treasury Department includes $2.5 billion to cover required quarterly dividends paid to the government. It brings the total cost to taxpayers of Fannie Mae's rescue up to more than $94 billion."

Adorable baby cineastes interlude: A baby recreates classic films.

Health Care

Norquist doesn't want to cut health reform subsidies, reports Sahil Kapur: "Top aides to House Appropriations health subcommittee Chair Denny Rehberg (R-MT) met privately on Tuesday (Nov. 8) with a lobbyist from Grover Norquist's influential anti-tax group and others to defend the congressman's bill axing health reform law subsidies, seeking to assuage concerns that Rehberg's measure may amount to a net tax increase, Inside Health Policy has learned. After the meeting, Rehberg forcefully derided the contention. The law's subsidies for low-income Americans are provided in part through the tax code, and Norquist's Americans For Tax Reform (ATR) views cutting tax credits as a form of raising taxes, which all but a handful of congressional Republicans have signed his pledge not to do."

Ohio voters disapprove of the individual mandate, reports Sam Baker: "Voters in Ohio approved a measure Tuesday night disapproving of President Obama’s healthcare law. Ohioans passed an amendment to the state constitution that says Ohio residents cannot be forced to buy health insurance. The amendment, however, will likely do very little to prevent Ohio residents from being forced to buy health insurance. The U.S. Supreme Court will meet in a closed session this week to debate whether it should hear a challenge to the federal healthcare law’s individual mandate. If the court ultimately strikes down the coverage mandate, Ohio’s amendment -- and the smattering of other state laws disapproving of the mandate -- would become moot. If the court upholds the mandate, it would preempt state laws."

Domestic Policy

Obama is pushing for tougher Head Start quality standards, reports Scott Wilson: "President Obama announced changes to federal funding for the Head Start early education program Tuesday in an event designed to showcase not only his education record but also to attack Republican proposals to cut spending for what he believes is crucial to future job creation...The change Obama outlined will require low-performing public schools that receive Head Start funding to compete for that money rather than receive it automatically, as is the current rule. Administration officials said the step, while potentially threatening funds to some under-performing schools, would promote accountability in public education."

Occupy Wall Street is making unions bolder, reports Steven Greenhouse: "Union leaders, who were initially cautious in embracing the Occupy movement, have in recent weeks showered the protesters with help -- tents, air mattresses, propane heaters and tons of food. The protesters, for their part, have joined in union marches and picket lines across the nation. About 100 protesters from Occupy Wall Street are expected to join a Teamsters picket line at the Sotheby’s auction house in Manhattan on Wednesday night to back the union in a bitter contract fight. Labor unions, marveling at how the protesters have fired up the public on traditional labor issues like income inequality, are also starting to embrace some of the bold tactics and social media skills of the Occupy movement."

Grover Norquist's lobbying is hardly limited to taxes, report Jonathan Allen and Jake Sherman: "Grover Norquist is all about taxes -- except when he isn’t. America’s No. 1 anti-tax activist has turned his single-minded nonprofit organization and its no new taxes pledge into a sprawling lobbying empire that leverages his iconic status to influence politicians on a broad array of issues that sometimes have little or nothing to do with preventing tax hikes. Norquist has lobbied the State Department to approve the controversial Keystone XL Pipeline; he opposes Internet regulations intended to crack down on online child pornography; he weighs in on Pentagon spending; he gets involved in postal issues; and he even lists among his lobbying efforts a bill that would make payments to the people of Guam for injuries suffered during World War II."

Outer space's funniest home videos interlude: Astronauts falling down on the moon.

Energy

The White House has unveiled a new five-year drilling plan, reports Steven Mufson: "The Obama administration’s new five-year plan for offshore oil and gas drilling includes lease sales in federal waters in the Gulf of Mexico and off the coast of Alaska but will not offer leases for drilling off Virginia or other parts of the eastern United States. The Interior Department’s proposed plan delineates where oil and gas companies can bid, from 2012 to 2017, to lease offshore areas they think hold the promise of new oil and gas reserves. The plan drew fire from some environmental groups, which said it went too far, and from the American Petroleum Institute, whose president, Jack Gerard, called it a 'missed opportunity' and said it did not go far enough in opening up new areas for drilling."

Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.

 
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