"No Magic Beans Required"
A Progressive Plan to Avoid the Fiscal Cliff
As we discussed yesterday, Republicans have put their so-called plan to avoid the fiscal cliff on the table. The White House correctly observed today that the GOP’s vague and uncertain promises of new tax revenues amounted to little more than “magic beans and fairy dust.”
Fortunately, there is a way to avoid the fiscal cliff — and do so in a progressive way — that doesn’t require either magic beans or fairy dust. The not-so-secret ingredient in a new tax reform and deficit reduction plan released today by the Center for American Progress is making the wealthiest Americans pay their fair share.
“The team that brought you the last good economy,” Roger Altman, William Daley, John Podesta, Robert Rubin, Leslie Samuels, Lawrence Summers, Neera Tanden, Antonio Weiss, Michael Ettlinger, Seth Hanlon, and Michael Linden, a collection of leading economic experts from the Clinton administration and other CAP experts, have outlined a balanced approach that will deal with our fiscal challenges, make our tax code more progressive, and grow the economy in a way that will reduce income inequality and rebuild the middle class.
ThinkProgress’ Travis Waldron breaks down the details in four charts:
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 (or simply the payroll tax cut itself) 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:
BOTTOM LINE: Solving our fiscal challenges doesn’t require magic. It just requires simple math, which means asking the wealthiest Americans to go back to the tax rates they paid during the period of massive economic growth we enjoyed under President Clinton.
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