I'm surprised to see Howard Gleckman has a different interpretation of the Tax Policy Center's analysis of the fiscal commission's working paper than I did: "Paul Krugman & friends can rest easy. The Bowles-Simpson proposal is indeed an across-the-board tax increase-- and a fairly progressive one at that."
Huh? The numbers I'd seen looked very regressive, but it turns out that the TPC made a mistake: It assumed that the commission's effort to broaden the tax base by ending all tax expenditures included payroll as well as income taxes, but that's not what the commission expected, and they needed to redo their calculations.
The other issue is whether it is better to compare the changes the working paper proposed to current law or current policy. Current law is what's on the books right now, and current policy is a budget-savvy way to factor in how members of Congress regularly avoid that law. For example, the current law knows that the alternative minimum tax (AMT), originally designed to prevent wealthy taxpayers from avoiding payment, isn't linked to inflation, and so impacts more middle-class taxpayers every year. Current policy knows that Congress puts a patch on the AMT every year to prevent this from happening. When you're doing long-term budgeting, current policy is generally the best approach to avoid making assumptions that will never come true.
However, when you're contemplating a radical change in tax policy, including wiping out the AMT and the Bush tax cuts, it's less important to factor in Congress' expected behavior around those policy areas -- we're doing more of a side-by-side comparison. This is further complicated by the fact that the commission itself used a third baseline, the Congressional Budget Office's alternative fiscal scenario. The TPC concludes that the commission's baseline "approximates the current policy baseline for most taxpayers, but is closer to the current law baseline for high-income taxpayers." That makes it difficult to figure out what interests me most: How the commission's plan will affect high-income taxpayers relative to low-income taxpayers. Here are the most recent numbers for what the commission's plan would do by 2015:
While the affects of the AMT plan make cross comparison difficult, the big difference here is that the law baseline compares the commission's plan to a world where the Bush tax cuts expire, while policy compares it to a world where they are extended. As near as I can figure, the commission's tax plan would let the wealthy keep more of their money than the Clinton administration's tax policies, and less than the Bush administration's -- basically as though the Bush administration had given a smaller tax cut to the wealthy.
Given that Bush tax policy is both unsustainable and hasn't demonstrated significant growth benefits, we really should look askance at a plan that would walk back their impact but not eliminate them entirely -- especially when the commission's working paper would be using tax revenue that could be going to deficit reduction to lower rates. And even with the most "favorable" comparison for progressives -- to current policy -- folks making between $40,000 and $70,000, right at the national median, would see the same drop in tax income as the wealthiest. That's not particularly progressive, but it's not as a regressive as I first feared.
-- Tim Fernholz
