Conrad is chairman of the Budget Committee and a longtime deficit hawk, so as you’d expect, his budget hits all the typical targets. According to the Budget Committee, it’s got $4 trillion of deficit reduction over 10 years and takes deficits from 9.3 percent of GDP in 2011 to 2.5 percent in 2015 and 1.3 percent in 2021. But you’re probably used to hearing about deficit plans that cut $4 trillion by now. What’s different is how Conrad’s proposal does it.
“When Democrats on the Senate Budget Committee approached this problem, we looked at it in historical perspective,” Conrad said in a speech on the Senate floor. “How did we get into this problem? Half of it is on the revenue side. So we chose to deal with a solution that deals on both sides of the ledger.” The Conrad budget relies on a 50:50 split between revenues and spending cuts — and, since it counts reduced interest payments as spending cuts, you can argue it does a lot more than half on the tax side. But let’s take the two sides separately.
Spending cuts: Conrad’s budget includes $886 billion in cuts to security spending (achieved by reducing spending by one percentage point each year until 2015, and then holding growth at GDP-1 percent) and $314 billion in cuts to non-security discretionary spending (which, adjusted for inflation, holds it below 2008 levels for the next 10 years). So all in all, that’s $1.2 trillion from the “discretionary spending” category.
That leaves mandatory spending: Medicare, Medicaid, Social Security, farm subsidies, etc. The Budget Committee isn’t naming any cuts from this pot, though I’m told some will be in the final document. So how do they get to $2 trillion on the spending side? Interest. The tax increases and the spending cuts mean we won’t have to borrow as much money over the next 10 years, which means we won’t have to pay as much in interest. The budget counts the money we’re no longer spending on interest payments as spending reductions, which is how they get to $2 trillion. Altogether, this leaves total spending at about 22 percent of GDP — approximately where it was in the Reagan years.
Taxes: Conrad likes to note that on the five occasions when the budget hit surplus in the past 40 years, revenues were somewhere between 19.5 percent and 20.6 percent of GDP. Conrad seeks to get them back to 19.5 percent of GDP, the low end of that range.
His budget proposes to hold the current tax rates for families with incomes below $1 million and to restore the Clinton-era tax rates for everyone above that. The estate tax goes back to its 2009 levels — low, but higher than it is now — while the alternative minimum tax gets patched up for awhile longer and the maximum tax rate on capital gains and dividends is raised from 15 percent to 20 percent.
That, as far as I can tell, is the budget’s tax baseline — and it’s a baseline that raises money against where we are now. From there, the budget uses a tax reform process that cuts unnamed expenditures and corporate breaks until it’s raised $2 trillion. That’s why I say the budget raises more than it suggests on the tax side: Whereas the specific spending cuts amount to less than $2 trillion, the tax increases amount to more than $2 trillion, at least compared to where we are now.
But as Conrad noted on the Senate floor, it amounts to a bit tax cut from where we’re scheduled to be in two years. “If the CBO scored the proposal by Senate Budget Committee Democrats, they would not say there is any tax increase here at all. Let me repeat that. If the Congressional Budget Office scored this proposal by Senate Budget Committee Democrats, they would say there is a $765 billion tax cut over 10 years. How can that be? How can I be saying there is $2 trillion of additional revenue over 10 years, and the Congressional Budget Office would say — if they evaluated this plan by Budget Committee Democrats — they would say it is a $765 billion tax cut? The reason is simple.”
“In our plan, we extend all of the middle-class tax cuts. In addition, we actually broaden the middle-class tax cuts so that nobody is affected by a rate increase unless they are a couple earning over $1 million a year. We also provide the alternative minimum tax relief to prevent millions of middle-class people from being affected by that law. As I indicated earlier, that costs $1.5 trillion over the next 10 years to shield middle-class taxpayers from that. Third, we provide estate tax reform at the 2009 levels so that well over 99 percent of estates are completely shielded or exempt.”
So although the Conrad plan includes much more in taxes than the Republican plan, or Obama’s plan, it includes less than if we did nothing. But it turns out to be enough. “This year the deficit is 9.3 percent of gross domestic product. We bring it down very steadily until we get down to 1.3 percent in the 10th year — a lower deficit in dollar terms, a lower deficit as a share of GDP than the House Republican plan. Let me repeat that. The Senate Democrats on the Budget Committee — our plan reduces the deficit by the 10th year by more than the Republicans in total, and in the 10th year we have a lower deficit in dollar terms and a lower deficit as a share of GDP.”
But perhaps it doesn’t matter. This is perhaps the budget Democrats should have released initially, but now it’s been preempted by Obama’s April proposal, which was was far to the right of this one, and the deal he offered Boehner last weekend, which was far to the right of that. Conrad admitted as much in the conclusion of his remarks. “We are under no illusions,” he said. “We know this is a year in which the normal process is not being followed. We understand there are leadership negotiations at the highest level, so we understand this is not going to be dealt with in the normal course of doing business. We understand there is leadership negotiation, but we believe there are some ideas in this package that deserve consideration as those negotiations go forward.”