A Vital Tax Table of the Holiday Season

November 21, 2011 at 4:26 pm

Between Thanksgiving and Christmas, Congress has an important tax policy decision to make.  With the economy still struggling and one in eleven Americans out of work, January 1 would be an awful time to cut every paycheck in America.  But, every paycheck in America will shrink unless Congress acts to extend, and preferably expand, the payroll tax holiday by the end of the year.

Up and down Wall Street, economists are warning about the severe consequences of inaction on payroll taxes and extended unemployment benefits.  Goldman Sachs estimates that expiration of the payroll tax cut would reduce growth by as much as two-thirds of a percentage point in early 2012.  Moody’s Mark Zandi adds that if Congress does not extend the payroll tax holiday and unemployment benefits for 2012, “there will be approximately one million fewer jobs by year’s end.”

Failure to extend the payroll tax cut would hurt workers in nearly every job and income category.  For example, the nation’s 1.4 million truck drivers, whose salaries average $39,450, would pay $789 more in payroll taxes, on average. The nation’s 2.7 million nurses, whose salaries average $67,720, would lose $1,354, on average.

The table below is one that every member of Congress should study:

Failure to Extend the Payroll Tax Cut Would Shrink Paychecks of Working Americans

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Orszag Is Right: Locking in Bush Tax Cuts Not Worth a $1.2 Trillion Supercommittee Deal

November 21, 2011 at 12:36 pm

Former Office of Management and Budget Director Peter Orszag, now vice chairman of global banking at Citigroup, hit the nail on the head when he told Atlantic Media’s Ron Brownstein recently that “There is virtually nothing the supercommittee could plausibly do that could offset the harm from making the [Bush] tax cuts permanent” because of their very large cost.

Some supercommittee proposals would actually have been damaging to long-term deficit reduction.  The plan of Republican Sen. Pat Toomey, for example, would have set tax rates well below the Bush levels and locked them in permanently.  Furthermore, it would have devoted the overwhelming bulk of the revenues from reforming tax expenditures to paying for those lower rates.  The result would have been that both the large potential savings from tax reform and the potential savings from allowing some or all of the Bush tax cuts to expire would have been taken off the table for the future rounds of deficit reduction the nation will need.

While fiscal commission co-chairs Erskine Bowles and Alan Simpson and the Gang of Six called for cutting rates below the Bush levels, their plans would have raised over $2 trillion in net new revenues, and produced about $5 trillion in deficit reduction overall, relative to the current-policy baseline.  By contrast, the Toomey plan would have left most of the needed deficit reduction for the future (it would have achieved, at most, $1.5 trillion in deficit reduction) and secured a scant $300 billion from revenues.

As Orszag noted (and we’ve said before), a supercommittee agreement that locked in unaffordably low tax rates and made it more difficult to raise additional revenues in the future would set back the cause of deficit reduction.

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Republicans’ Latest Supercommittee Offer: $181 in Spending Cuts for Each $1 in Revenue Increases

November 18, 2011 at 5:11 pm

Republicans on the supercommittee have made a new offer that would reduce deficits by $640 billion over the next decade, according to news reports (here and here).  The Republican offer consists of roughly $542 billion in spending cuts and $3 billion in revenues, meaning the ratio of spending cuts to revenue increases in the plan is 181 to 1. These measures would also produce nearly $100 billion in debt-service savings.  Democrats promptly rejected the new Republican offer as unbalanced.

When one includes the $900 billion in discretionary spending cuts already enacted in the Budget Control Act, the plan’s total deficit reduction rises to about $1.445 trillion, and its ratio of spending cuts to revenue increases rises to 481 to 1.

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In Case You Missed It…

November 18, 2011 at 4:39 pm

This week on Off the Charts, we discussed Congress’ deficit-reduction “supercommittee,” the proposed constitutional balanced budget amendment, the economy, federal taxes, state budgets, and health reform.

  • On the supercommittee, Jim Horney explained why doing nothing would reduce deficits by $7.1 trillion over the next decade.  Paul Van de Water noted that the automatic cuts to non-defense discretionary spending that will occur if the committee doesn’t agree on a plan could be less severe than the cuts that the committee is considering.  Kathy Ruffing pointed out that most previous deficit-reduction packages have contained significant revenue increases.  And we featured two papers — one on the “Toomey proposal” to reduce deficits and one on a Democratic proposal issued in response to it.
  • On the balanced budget amendment, Robert Greenstein explained why a common comparison between a family budget and the federal budget is false.  We also highlighted two new papers on the budget cuts and economic problems that a constitutional balanced budget amendment would entail, as well as a video of Jared Bernstein and Jim Horney discussing the perils of a balanced budget amendment.
  • On the economy, we featured Chad Stone’s testimony before the congressional Joint Economic Committee on why tax reform is unlikely to boost business investment and job creation.
  • On federal taxes, Chuck Marr explained why a flat tax wouldn’t make the tax code simpler, just more regressive.  He also highlighted recent Congressional Budget Office data ranking a tax repatriation holiday last out of a number of job-creation proposals.
  • On state budgets, Phil Oliff explained that states’ progress in reducing income taxes on working-poor families stalled in 2010 and noted that a few states have even raised taxes on these families.  Michael Mazerov discussed legislation that would help states collect sales taxes owed on Internet purchases.
  • On health reform, Judy Solomon rebutted the claim that under the Affordable Care Act, residents of states that don’t establish a health insurance exchange won’t qualify for help buying coverage.

In other news, we released Chad Stone’s testimony on whether tax reform could boost the economy. We also released reports on the recent offers from Republicans and Democrats on the supercommittee, program cuts under a balanced budget amendment and the economic damage that such an amendment could cause, the composition of past deficit-reduction packages, and the impact of state income taxes on low-income families in 2010.

Examining Supercommittee Proposals

November 18, 2011 at 2:40 pm

We issued two reports today on deficit-reduction proposals in the congressional “supercommittee”:

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