THE BLOG
12/04/2012 05:29 pm ET | Updated Feb 03, 2013

Move Over Simpson-Bowles... There's a New Plan in Town

The Center for American Progress has a smart, simple, progressive, and politically plausible new fiscal plan out and it's worth a close look. Here are the main features that caught my eye:

  • Raises significant revenue, and does so progressively.
  • Simplifies the codes (repeals the AMT!) again in a progressive manner (e.g. turns some deductions into credits, which is a) more plausible than ending said deductions, and b) more fair than the current system).
  • Disposes of that artificial250,000 threshold line-in-the-sand.
  • Some preferential treatment of investment income but closer to goal of equal treatment.
  • Lowers the corporate rate, something many businesses and their think tanks have clamored for (paid for by closing corporate tax breaks).
  • Builds on the1.5 trillion of spending cuts on the books, but without hurting vulnerable beneficiaries of the safety net and social insurance.
  • Protects domestic programs (non-entitlements) from further spending cuts; generates Medicare savings from specific reform to the delivery system.
  • $100 billion to preserve the payroll tax cut, or something like it, in 2013.

Here are the broad outlines of the plan:

2012-12-04-cap_plan.png

Source: CAP

And here's a distributional table -- relative to current policy (i.e. what's in place now, not what's in place if we go over the cliff -- current policy is the relevant baseline) liabilities go up a bit for families above $100,000 but by less than half-a-percent of their income. And the progressive impacts are easy to see in the "percent change" column.

2012-12-04-cap_dist.png

Source: CAP

I suggested above that it's politically plausible. It's actually pretty Clintonesque -- to be expected when you look at the list of authors -- and most people recognize that tax structure as compatible with strong growth, strong profitability, and fiscal rectitude. But it does call for higher tax rates for some (and not just the top 2 percent) including cap gains and dividends (compared to current policy, that is). Still, I don't see why this should be any less beloved than Simpson-Bowles, widely embraced by conservatives (though, truth be told, once they learn what's actually in SB, they usually love it less).

What's missing here? There's no tax on carbon -- a bit surprising, but maybe they left that out for political reasons. I'd add a financial transaction tax, but again, you'd lose some support. Also, they need to be specific about how they'd pay for lower corporate tax rates. It's easy to say "loophole closures to be named later" but as Rep Boehner's opening cliff offer reveals, that's not a useful formulation for real reform.

That said, the plan's simplicity -- not trotting out a bunch of new cats and dogs -- is another attractive feature. I know a lot of people want to see a VAT or some other major restructuring of the code, but conditional on simplifying what we have, enhancing progressivity, and raising needed revenue, I'm much more partial to working off of what we've got. I just think that's the most realistic way forward.

Once we get the cliff behind us, there's likely to be a move towards tax reform. I'll be touting this plan more in coming weeks as a solid candidate for that debate.

This post originally appeared at Jared Bernstein's On The Economy blog.

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