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Ezra Klein: Does the Obama budget raise taxes? Or cut them?

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flpoljunkie Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Apr-14-11 10:09 AM
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Ezra Klein: Does the Obama budget raise taxes? Or cut them?
Does the Obama budget raise taxes? Or cut them?
By Ezra Klein

This should be an easy question to answer. The presidents proposal says it includes three dollars of spending cuts and interest savings for every one dollar from tax reform. Thatd make the ratio 3:1. But as Ethan Pollack, a senior fellow at the Economic Policy Institute and a former staffer on the Fiscal Commission, points out, another calculation and one thats just as valid suggests its 2:1. Or maybe 1:1. Or maybe, in case youre not sufficiently confused, theres actually a big tax cut in the plan, and no new revenues whatsoever.

To understand why this is so hard to measure, you need to understand both whats in the presidents plan and, perhaps even more importantly, whats behind it. The proposal says that itll raise $1 trillion in new revenues over 12 years by closing or curbing various tax expenditures. But it also assumes the expiration of the Bush tax cuts for income over $250,000 an assumption that nets you another trillion dollars or so over the same period, but that theyre not including in their 3:1 calculation.

So lets go back to that 3:1 calculation. What theyre implying here is that the proposal is $3 in spending cuts for every $1 in tax increases. That is to say, it relies much more heavily on spending cuts than on tax increases. But if you look closely, theyre including a trillion in reduced interest payments in the spending cuts category. Theres no real reason, however, that reduced interest payments should count as spending cuts. After all, some of those reduced interest payments are coming because weve raised taxes. If you put the interest payments in their own bucket something the White House does often when it encourages people to look at the primary deficit, which excludes interest payments the ratio of actual spending cuts to tax increases is more like 2:1. And then, if you add in the expiration of the Bush tax cuts for the wealthy, its more like 1:1.

But that gives the White House too much credit. As the law is written, its not just the tax cuts for income over $250,000 that expire in 2012. Its all the Bush tax cuts, which amount to about $4 trillion over the next 10 years, of which the cuts for the rich are less than $1 trillion. So the Obama administration is saying its going to extend about 80 percent of the Bush tax cuts and let 20 percent of them expire. Even if you add in the trillion dollars theyre looking to raise by cleaning out the tax code, that means that the sum total of their policy both whats included in their budget proposal and whats hidden behind it amounts to large tax cut when compared to current law. Their policy only amounts to a tax increase if you ignore the massive tax cut theyre building into its background assumptions.
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