Taxes and Paul Ryan’s Budget

By :: March 12th, 2013

House Budget Committee Chair Paul Ryan (R-WI) has proposed a controversial  plan to balance the budget in 10 years, entirely by cutting planned spending by $4.6 trillion. While Ryan includes lots of specific spending cuts, his tax agenda is far less clear.   

In some respects, the former GOP vice presidential candidate mimics the tactics of the 2012 campaign: Promise tax reform built around wildly ambitious but gauzy rate reductions without a word about how to pay for them.

His plan aspires to collapse today’s seven-bracket individual income tax to a two-rate system that would raise the same amount of money as current law. It would set a top rate of 25 percent, down from today’s 39.6 percent, though it calls this merely a goal. He’d repeal the Alternative Minimum Tax and slash the corporate rate from 35 percent to 25 percent. He’d do all this while maintaining revenues at levels projected in the Congressional Budget Office baseline—19.1 percent of Gross Domestic Product in 2023.

Interestingly, this 19.1% target assumes a revenue base that includes the tax hikes on high income households from Obamacare and the New Year’s Day fiscal cliff deal (the American Tax Relief Act).

Under the 2010 health law, high-income households will pay an additional 0.9 percent Medicare payroll tax and a new 3.8 percent levy on investment income such as capital gains and dividends. ATRA restored the old 39.6 percent tax bracket for top-bracket households.

Ryan would repeal all of Obamacare, including its new taxes. And he’d roll back the top tax rates in ATRA. But by assuming the level of revenues both laws would collect, Ryan makes it easier to balance his budget in 10 years since current law brings in higher revenues.

Thus this budget now accepts the extra revenues (though not the specific taxes) that Ryan and Hill Republicans so vehemently opposed just two months ago. This time last year, Ryan set a 2022 revenue target of 18.7 percent. Two years ago, he aimed for just 18.3 percent after a decade. Now, Ryan's goal is 19.1 percent by 2023.   

Because the Ryan plan would restructure the code but collect the same amount of revenue as today’s system, this budget would have to eliminate trillions of dollars in tax preferences.

Ryan, like President Obama and most members of Congress, prefers to call these loopholes. But in reality, targets would almost certainly include popular preferences such as deductions for mortgage interest, state and local taxes, and charitable gifts as well as the exclusion of employer-sponsored health insurance from taxable income. 

In addition, cutting rates as deeply as Ryan wants would likely result in a huge tax cut for the very wealthy unless Congress raises rates on capital gains and dividends. Yet Ryan's latest budget does little more than promise to simplify the tax code, whatever that means.

Ryan, however, is leaving the dirty work to the House Ways & Means Committee, where Chairman Dave Camp (R-MI) is trying to develop a serious tax reform plan. Ryan is not only dodging the unpleasant details, he is also buying time.  

This budget leaves two huge revenue questions—one tactical and the other substantive.

The first is whether Congress would be willing to rewrite the tax code as part of the budget reconciliation process, which would foreclose a filibuster in the Senate and allow the chamber of pass a tax code rewrite with just 51 votes. Some Senate Democrats, including Budget Committee Chair Patty Murray (D-WA), are said to favor such a plan. But Finance Committee Chair Max Baucus (D-MT) is not a fan.

The substantive, more serious problem, is that revenue target of 19.1 percent of GDP. It is slightly higher in this budget than in past House GOP fiscal plans. And we’ll see the Democrats’ opening bid tomorrow when the Senate Budget Committee releases its fiscal plan. But 19.1 percent of GDP falls far short of what Democrats are willing to accept.

Thus, we remain at square one. Until there is a middle-ground on a revenue target, there will be no tax reform and no grand bargain. The Ryan plan provides little hope that such a consensus is near.     

 

27Comments

  1. Is there anything new to learn from America’s conservative budget? – Quartz  ::  3:04 pm on March 12th, 2013:

    […] unspecified plan for tax reform that promises to maintain current levels of revenue—including those raised at the end of last […]

  2. The Paul Ryan budget isn’t serious  ::  3:47 pm on March 12th, 2013:

    […] his analysis of the Ryan plan, TPC’s Howard Gleckman shows the incredible game of charades being […]

  3. Michael Bindner  ::  4:53 pm on March 12th, 2013:

    Assuming the repeal of Obamacare is entirely necessary to his numbers, although he would have to assume that at least senior’s would be protected under its pre-existing condition reforms. They would also have to settle for a system of bifurcated care, where richer seniors get better services while lower cost plans provide lesser service. This may simply squeeze the sickest patients into Medicaid, which means that states (who are more task averse than Ryan) will pick up the slack.

    If we assume that Obamacare fails rather than is repealed, with the result being single-payer or a subsidized public option, then even more revenue will be required to cover what private policies now pay. Tax benefits for health insurance may or may not be turned into additional revenue to pay for single payer (unless there is an opt-out plan for private but superior care).

    There is only one way to get the tax rates for the rich Ryan wants, and that is to enact some type of consumption tax in addition to income taxes – something along the lines of what Michael Graetz, Lawrence B. Lindsey, Len Burman or I have proposed. In that event, the number of households actually filing taxes can be decreased radically – although I don’t see Ryan agreeing to such a thing in this Congress. I’m not so sure Obama would either, except to save Obamacare.

  4. TaxVox » Blog Archive » Taxes and Paul Ryan's Budget « Double Taxes  ::  9:34 pm on March 12th, 2013:

    […] Original post: TaxVox » Blog Archive » Taxes and Paul Ryan's Budget […]

  5. TaxVox » Blog Archive » Taxes and Paul Ryan's Budget « Tax Rate Calculator  ::  11:42 pm on March 12th, 2013:

    […] TaxVox » Blog Archive » Taxes and Paul Ryan's Budget […]

  6. TaxVox » Blog Archive » Taxes and Paul Ryan's Budget | Income Tax Guide  ::  12:46 am on March 13th, 2013:

    […] Follow this link: TaxVox » Blog Archive » Taxes and Paul Ryan's Budget […]

  7. 2013 TAX FREE WEEKEND NM  ::  7:49 am on March 13th, 2013:

    […] TaxVox » Blog Archive » <b>Taxes</b> and Paul Ryan's Budget […]

  8. Tax Roundup, 3/13/2013: Governor, legislators battle over who to give your money to. Plus: Education credit returns bog down. « Roth & Company, P.C  ::  9:03 am on March 13th, 2013:

    […] Howard Gleckman,  Taxes and Paul Ryan’s Budget (TaxVox) […]

  9. Any Moose  ::  1:23 pm on March 13th, 2013:

    People earning over $10 million per year paid an effective income tax of 23.9% in 2010.

    Ryan’s 25% would be an increase in tax rates on the wealthy.

    http://www.irs.gov/file_source/PUP/taxstats/indtaxstats/10in11si.xls

  10. David  ::  5:27 pm on March 13th, 2013:

    That number includes dividends and capital gains tax, which Ryan isn’t going to touch, so no, it wouldn’t be an increase. I mean, think about it – any of that money which isn’t capital gains is getting taxed at 39.6%. And that’s the percentage of taxable income, so it’s already including all the deductions. So how is decreasing the rate from 39.6% to 25% going to increase the amount of taxes collected?

  11. Paul Ryan’s tax numbers: Just ‘magic asterisks’? | Xtax  ::  6:08 am on March 14th, 2013:

    […] “Thus this budget now accepts the extra revenues (though not the specific taxes) that Ryan and Hill Republicans so vehemently opposed just two months ago [in the fiscal cliff battle],” writes the Urban Institute’s Howard Gleckman in a Tax Policy Center analysis. […]

  12. SteveinCH  ::  9:55 pm on March 14th, 2013:

    The dividends and cap gains taxes, assuming the tax changes in the ACA, is set at 23.9%. That’s really not much different now is it?

  13. Brooks and Krugman | Marion in Savannah  ::  6:30 am on March 15th, 2013:

    […] then, his budgets have gotten even flimflammier. For example, at this point, Mr. Ryan is claiming that he can slash the top tax rate from 39.6 percent to 25 percent, yet somehow raise 19.1 percent of G.D.P. in revenues — a number […]

  14. After the Flimflam | Today Tops  ::  9:41 am on March 15th, 2013:

    […] then, his budgets have gotten even flimflammier For example, at this point Mr. Ryan is claiming that he can slash the top tax rate from 396 percent to 25 percent, yet somehow raise 191 percent of G.DP. in revenues — a number we […]

  15. After the Flimflam | Jobs Not Wars  ::  9:40 pm on March 15th, 2013:

    […] then, his budgets have gotten even flimflammier. For example, at this point, Mr. Ryan is claiming that he can slash the top tax rate from 39.6 percent to 25 percent, yet somehow raise 19.1 percent of G.D.P. in revenues – a […]

  16. After the Flimflam – New York Times | alltheworldsnews.com  ::  4:21 am on March 16th, 2013:

    […] then, his budgets have gotten even flimflammier. For example, at this point, Mr. Ryan is claiming that he can slash the top tax rate from 39.6 percent to 25 percent, yet somehow raise 19.1 percent of G.D.P. in revenues — a number […]

  17. After the Flimflam – New York Times | allthelatestnewsonline.com  ::  4:35 am on March 16th, 2013:

    […] then, his budgets have gotten even flimflammier. For example, at this point, Mr. Ryan is claiming that he can slash the top tax rate from 39.6 percent to 25 percent, yet somehow raise 19.1 percent of G.D.P. in revenues — a number […]

  18. RealPerson  ::  4:33 pm on March 17th, 2013:

    Kudos to Paul Ryan for trying… that’s more than the “Do Nothing” Senate Dems did for 4 years. Funny how there are 40 staffers at the Executive Office of the President that didn’t pay their taxes for 2011. they should all be fired and their wages garnished… I bet that would cover the White House Tours.

    If the President thought the Sequestration bill was such a bad idea, why did he sign it into law? If I lose $400/month because of it…I blame him and his failure to lead.

  19. Slinking Toward Retirement | After the Flimflam – NYTimes.com | News, Travel, Opinion and Just Odd and Funny Things…  ::  11:01 pm on March 17th, 2013:

    […] then, his budgets have gotten even flimflammier. For example, at this point, Mr. Ryan is claiming that he can slash the top tax rate from 39.6 percent to 25 percent, yet somehow raise 19.1 percent of G.D.P. in revenues — a number […]

  20. “After The Flimflam”: Little By little, Washington’s Fog Of Fiscal Austerity Seems To Be Lifting « mykeystrokes.com  ::  11:01 am on March 18th, 2013:

    […] then, his budgets have gotten even flimflammier. For example, at this point, Mr. Ryan is claiming that he can slash the top tax rate from 39.6 percent to 25 percent, yet somehow raise 19.1 percent of G.D.P. in revenues — a number […]

  21. After the Flimflam | LeftWingPost.com  ::  7:09 am on March 19th, 2013:

    […] then, his budgets have gotten even flimflammier. For example, at this point, Mr. Ryan is claiming that he can slash the top tax rate from 39.6 percent to 25 percent, yet somehow raise 19.1 percent of G.D.P. in revenues — a number […]

  22. Chronicles of Inequality [March 25, 2013] » The Greanville Post —Vol. VII- 2013  ::  5:03 pm on March 25th, 2013:

    […] nerve to vote for the Caucus plan. But 327 didn’t. The budget the House did bless last week calls for slicing the top tax rate from 39.6 to 25 percent. This GOP budget, notesProgressive Caucus co-chair Keith […]

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