SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
To donate by check, phone, or other method, see our More Ways to Give page.
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
For the moment, let's leave aside the fact that these plans neglect to raise a dollar in additional revenue at a time when we need more revenue to put the government on a sustainable fiscal path. Why are these proposals pure folly? First, because they're obviously not serious--if they were, the plans would lead with the tax expenditure reform rather than the rate cuts. Instead, they're sold in manner suggesting that Romney and Ryan wanted to propose big across-the-board tax cuts but didn't want to be seen as blowing up the deficit, so they included vague language on base-broadening in order to ignore the monumental cost of slashing tax rates.
But most importantly, these plans aren't serious because their stated intent isn't mathematically possible. In an analysis released Wednesday, researchers at Brookings and the Tax Policy Center analyzed a plan that is consistent with Romney's proposal, including lowering rates by a fifth and eliminating the Alternative Minimum Tax. The researchers then attempted to construct a base-broadening approach to both make up the revenue lost from the rate cuts and maintain the progressivity of the current tax code.
Turns out, they couldn't. The figure below shows even under the best case scenario, taxpayers with income under $200,000 (95 percent of all taxpayers) would pay more under the tax reform plan, and the top 5 percent would necessarily get a tax cut.
Why can't progressivity be maintained? For one thing, the initial tax cut is intrinsically regressive, providing a larger rate cut for high-income taxpayers: tax units between $50,000 and $75,000 would get an initial tax cut of under $1,000 (before losing tax preferences), while a taxpayer making over $1 million would get an initial tax cut over $175,000. This is partly because the taxpayers at the top have more income subject to taxes in the first place, but also because the 20 percent rate cut provides greater percentage-point cuts the higher the marginal rate. For example, a 20 percent reduction in the top 35 percent rate translates into a 7 percentage-point reduction, while the same reduction in the 25 percent rate translates into a 5 percentage-point reduction.
The second reason tax reform like this is inherently a losing proposition for the bottom 95 percent is that while tax expenditures do skew towards higher-income taxpayers, they also benefit middle- and upper-middle-income taxpayers. Furthermore, Romney and Ryan both explicitly exclude savings preferences--notably the preferential rate on capital gains and dividends--from the tax expenditures that they would be willing to curtail. As the figure below based on Tax Policy Center data shows, overall tax expenditures do provide a disproportionate benefit to the top income quintile, particularly the top 1 percent of earners, but this effect is completely driven by savings preferences, which are the only tax expenditures that Romney and Ryan won't touch. Exclude them, and the distributional impact of the remaining tax expenditures is quite flat--meaning the middle class would feel a big bite from their elimination.
So the next time you hear Romney or Ryan talking about how they're going to cut rates and broaden the base, keep in mind that there's one element of the plan that they're leaving out: the rich will pay less and everyone else will pay more.
Dear Common Dreams reader, The U.S. is on a fast track to authoritarianism like nothing I've ever seen. Meanwhile, corporate news outlets are utterly capitulating to Trump, twisting their coverage to avoid drawing his ire while lining up to stuff cash in his pockets. That's why I believe that Common Dreams is doing the best and most consequential reporting that we've ever done. Our small but mighty team is a progressive reporting powerhouse, covering the news every day that the corporate media never will. Our mission has always been simple: To inform. To inspire. And to ignite change for the common good. Now here's the key piece that I want all our readers to understand: None of this would be possible without your financial support. That's not just some fundraising cliche. It's the absolute and literal truth. We don't accept corporate advertising and never will. We don't have a paywall because we don't think people should be blocked from critical news based on their ability to pay. Everything we do is funded by the donations of readers like you. Will you donate now to help power the nonprofit, independent reporting of Common Dreams? Thank you for being a vital member of our community. Together, we can keep independent journalism alive when it’s needed most. - Craig Brown, Co-founder |
For the moment, let's leave aside the fact that these plans neglect to raise a dollar in additional revenue at a time when we need more revenue to put the government on a sustainable fiscal path. Why are these proposals pure folly? First, because they're obviously not serious--if they were, the plans would lead with the tax expenditure reform rather than the rate cuts. Instead, they're sold in manner suggesting that Romney and Ryan wanted to propose big across-the-board tax cuts but didn't want to be seen as blowing up the deficit, so they included vague language on base-broadening in order to ignore the monumental cost of slashing tax rates.
But most importantly, these plans aren't serious because their stated intent isn't mathematically possible. In an analysis released Wednesday, researchers at Brookings and the Tax Policy Center analyzed a plan that is consistent with Romney's proposal, including lowering rates by a fifth and eliminating the Alternative Minimum Tax. The researchers then attempted to construct a base-broadening approach to both make up the revenue lost from the rate cuts and maintain the progressivity of the current tax code.
Turns out, they couldn't. The figure below shows even under the best case scenario, taxpayers with income under $200,000 (95 percent of all taxpayers) would pay more under the tax reform plan, and the top 5 percent would necessarily get a tax cut.
Why can't progressivity be maintained? For one thing, the initial tax cut is intrinsically regressive, providing a larger rate cut for high-income taxpayers: tax units between $50,000 and $75,000 would get an initial tax cut of under $1,000 (before losing tax preferences), while a taxpayer making over $1 million would get an initial tax cut over $175,000. This is partly because the taxpayers at the top have more income subject to taxes in the first place, but also because the 20 percent rate cut provides greater percentage-point cuts the higher the marginal rate. For example, a 20 percent reduction in the top 35 percent rate translates into a 7 percentage-point reduction, while the same reduction in the 25 percent rate translates into a 5 percentage-point reduction.
The second reason tax reform like this is inherently a losing proposition for the bottom 95 percent is that while tax expenditures do skew towards higher-income taxpayers, they also benefit middle- and upper-middle-income taxpayers. Furthermore, Romney and Ryan both explicitly exclude savings preferences--notably the preferential rate on capital gains and dividends--from the tax expenditures that they would be willing to curtail. As the figure below based on Tax Policy Center data shows, overall tax expenditures do provide a disproportionate benefit to the top income quintile, particularly the top 1 percent of earners, but this effect is completely driven by savings preferences, which are the only tax expenditures that Romney and Ryan won't touch. Exclude them, and the distributional impact of the remaining tax expenditures is quite flat--meaning the middle class would feel a big bite from their elimination.
So the next time you hear Romney or Ryan talking about how they're going to cut rates and broaden the base, keep in mind that there's one element of the plan that they're leaving out: the rich will pay less and everyone else will pay more.
For the moment, let's leave aside the fact that these plans neglect to raise a dollar in additional revenue at a time when we need more revenue to put the government on a sustainable fiscal path. Why are these proposals pure folly? First, because they're obviously not serious--if they were, the plans would lead with the tax expenditure reform rather than the rate cuts. Instead, they're sold in manner suggesting that Romney and Ryan wanted to propose big across-the-board tax cuts but didn't want to be seen as blowing up the deficit, so they included vague language on base-broadening in order to ignore the monumental cost of slashing tax rates.
But most importantly, these plans aren't serious because their stated intent isn't mathematically possible. In an analysis released Wednesday, researchers at Brookings and the Tax Policy Center analyzed a plan that is consistent with Romney's proposal, including lowering rates by a fifth and eliminating the Alternative Minimum Tax. The researchers then attempted to construct a base-broadening approach to both make up the revenue lost from the rate cuts and maintain the progressivity of the current tax code.
Turns out, they couldn't. The figure below shows even under the best case scenario, taxpayers with income under $200,000 (95 percent of all taxpayers) would pay more under the tax reform plan, and the top 5 percent would necessarily get a tax cut.
Why can't progressivity be maintained? For one thing, the initial tax cut is intrinsically regressive, providing a larger rate cut for high-income taxpayers: tax units between $50,000 and $75,000 would get an initial tax cut of under $1,000 (before losing tax preferences), while a taxpayer making over $1 million would get an initial tax cut over $175,000. This is partly because the taxpayers at the top have more income subject to taxes in the first place, but also because the 20 percent rate cut provides greater percentage-point cuts the higher the marginal rate. For example, a 20 percent reduction in the top 35 percent rate translates into a 7 percentage-point reduction, while the same reduction in the 25 percent rate translates into a 5 percentage-point reduction.
The second reason tax reform like this is inherently a losing proposition for the bottom 95 percent is that while tax expenditures do skew towards higher-income taxpayers, they also benefit middle- and upper-middle-income taxpayers. Furthermore, Romney and Ryan both explicitly exclude savings preferences--notably the preferential rate on capital gains and dividends--from the tax expenditures that they would be willing to curtail. As the figure below based on Tax Policy Center data shows, overall tax expenditures do provide a disproportionate benefit to the top income quintile, particularly the top 1 percent of earners, but this effect is completely driven by savings preferences, which are the only tax expenditures that Romney and Ryan won't touch. Exclude them, and the distributional impact of the remaining tax expenditures is quite flat--meaning the middle class would feel a big bite from their elimination.
So the next time you hear Romney or Ryan talking about how they're going to cut rates and broaden the base, keep in mind that there's one element of the plan that they're leaving out: the rich will pay less and everyone else will pay more.