How To Progressively Reform The Tax Code, In Four Charts

The Center for American Progress has released a budget plan that would raise $1.8 trillion in revenues and cut $4.1 trillion from the deficit while stabilizing the nation’s debt over the next decade, all while averting the so-called “fiscal cliff” that would occur at the end of the year and making important investments into infrastructure and jobs programs.

On revenue, the CAP plan would end the high-income Bush tax cuts, pushing top marginal tax rates back to their Clinton-era level. It also reforms the tax code by closing loopholes, converting deductions to credits, and repealing the Alternative Minimum Tax. As a result, it would raise $1.8 trillion in revenues and bring taxes as a share of the economy into line with the Simpson-Bowles deficit reduction plan:

A substantial amount of the revenue would come from increasing the rate on capital gains, income earned through investments. Falling capital gains rates are the biggest driver of the growth in income inequality, according to one study, but the CAP plan would raise it to 28 percent, where the rate was under Ronald Reagan (it would also treat dividends, another form of investment income, as ordinary income, as it was for 90 years until Bush cut the rate in 2003):

CAP’s plan also cuts $1.8 trillion in spending, including the $385 billion from Medicare proposed in its Senior Protection Plan. It also finds another $100 billion in spending cuts from mandatory programs and cuts the defense budget by $10 billion a year over the next decade. The plan includes $300 billion in investments for infrastructure spending, teacher hiring, and energy efficiency programs, as well as $100 billion for the extension of middle class tax cuts similar to the payroll tax cut that would help the economy. Together with new revenue, the spending cuts would reduce interest payments on the debt by $500 billion, bringing overall deficit reduction to $4.1 trillion over the next 10 years and reducing federal spending to less than 23 percent of the economy:

The CAP plan would reduce budget deficits to 3 percent of gross domestic product in 2015 and to less than 2 percent by 2017, all while dropping the debt to 72 percent of the economy by the end of the decade. That’s a bigger reduction than Obama has proposed: