(Source: The New York Times)
I’ve been remiss in not calling attention to the budget proposal from the Congressional Progressive Caucus. It’s not going to happen — but then neither is the Ryan plan. And unlike the Ryan plan, it actually makes sense.
The CPC plan essentially balances the budget through higher taxes and defense cuts, plus some tougher bargaining by Medicare (and a public option to reduce the costs of the Affordable Care Act). The proposed tax hikes would fall mainly on higher incomes, although not just on the top 2%: super-brackets for very high incomes, elimination of deductions, taxation of capital income as ordinary income, and — the part that would be most controversial — raising the cap on payroll taxes.
None of this is economically outlandish. Marginal tax rates on high incomes would rise substantially — enough to make even liberal economists slightly uncomfortable — but the historical evidence suggests that the incentive effects wouldn’t be too severe. Overall taxes as a share of GDP aren’t given, but they would clearly remain well below European levels.
It’s worth pointing out that if you want to balance the budget in 10 years, you pretty much must do it largely by cutting defense and raising taxes; you can’t make huge cuts in the rest of the budget without inflicting extreme pain on millions of Americans. So the CPC plan is actually much more of a real response to the deficit worriers than all the nonsense we’re hearing from the right. What it doesn’t do is address the long-run health cost issue, which is essential looking beyond the next decade. But as a medium-term proposal, it’s quite sensible.
My guess, in fact, is that in the end we’ll do something along these lines, although probably with more of the tax burden falling on the middle class.
So why does this plan get no attention, while the cruel fantasies of the right get headlines? I’ll leave that as a question for readers.
Update: Aha. Although I couldn’t find share of GDP in the working paper, it’s right there on the home page. Revenues are 22.3 percent of GDP in 2021. That’s 3 points higher than what Ryan claims his plan would produce, although he hasn’t explained how he’s going to make up for those $3 trillion in tax cuts for the rich.
This would be a record level of revenue for the peacetime federal government, but it would still leave the overall tax take, including state and local, far below levels in most other advanced countries. And the point is that this would balance the budget without the savage cuts assumed in the Republican plan, or even the still painful cuts in the Obama plan. We supposedly face a fiscal crisis; why shouldn’t significant tax hikes be part of the response?