The Tax Policy centre will have to run the numbers, but Speaker Boehner’s formulation of resolving the fiscal cliff without allowing the upper income Bush tax cuts to expire may well suffer from the same bad maths as Gov Romney’s allegedly revenue neutral tax cut.
That is, the Speaker is saying no to tax cuts (which puts him at odds with the election results, but never mind that for now) but yes to new revenues through broadening the tax base.
Let me first say: good for him for recognising that we cannot achieve a sustainable budget path on spending cuts alone–the House R’s coming around to the realisation that new tax revenues in the deal represents potentially important forward motion.
But can we raise the same amount of revenue with base broadeners among the top 2% of households (that’s the group whose rates would go up), without resorting to magic supply-side growth asterisks? I don’t think so.
For example, for years, the President has proposed to cap all deductions for wealthy households at 28%, instead of their top rate of 35%.
Two problems: A) that raises $500 billion over 10 years, about half that of the upper income sunset, and B) we couldn’t get any Hill traction on it. B could possibly be overcome given today’s unique politics, though don’t count on it. This “broaden the base” stuff sounds real good to people until you start getting specific.
But A is a big constraint, raising the possibility of significantly less deficit reduction and/or tax increases on lower-income households. I’ll await further analysis, but as much as I hate to say it, we may be talking about tax plans with maths problems for a few more weeks.
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