Today in the Inquirer, Kevin Ferris channels PA Senator Pat Toomey, who has been providing a Republican spin on the failure of the Super Committee.
In the imagniarium of Pat Toomey and Kevin Ferris, the Senator courageously broke with fellow Republicans to propose a balanced, bi-partisan deal that would combine $450 million in tax increases along with $750 million in budget cuts to meet the Super Committee’s ten year goal. In rejecting this proposal, President Obama and the Democrats showed that they don’t truly want a balanced bipartisan solution to the deficit problem.
This is what the proposal looks like when you take off the funny glasses.
Toomey’s proposal would have raised revenue slightly—no more than $45 billion a year. But most of that increase would have come from the middle class not the rich.
Toomey proposed to reduce the marginal tax rates for everyone by 20%. However, the absolute reduction in the tax rate would vary from top to bottom. People making between $50,000 and $75,000 would see their after tax income increase 1.7%; those making $200,000 to $500,000 would see their after tax income increase 3.5%; and people making over $1 million would see their after tax income increase by almost 4.4%.
To increase revenues and make up for the decline in tax rates, Toomey’s borrowed a proposal from Martin Feldstein to caps tax expenditures—loopholes—to 2% of adjusted gross income. That sounds fair. But look at the details and you see that taxes go up far more on lower- and middle- than upper-income people. Feldstein’s proposal limits tax expenditures used by lower- and middle-income taxpayers such as the Child Tax Credit and the exclusion of employer paid health insurance. But It does not limit those used primarily by the rich, such as the partial exclusion of capital gains and dividends from taxation. And because the cap is set as a percentage of income, those with higher income will benefit more from loopholes than those with moderate or low incomes.
Toomey’s tax rate proposal would also lock in the already regressive Bush tax cuts, shifting the tax burden even more on the poor and middle class. And it gives up the $3.3 billion of deficit reduction we would get by letting the Bush tax cuts expire.
Of course Toomey claims that reducing marginal tax rates would spur economic growth. But while right wingers repeat this claim ad nauseum, it turns out to be true only in the fantasy world in which they live. At some point higher marginal rates do reduce economic growth. But recent studies by Nobel economics laureate Peter Diamond and Emmanuel Saez and by Mike Kimel suggest that raising the marginal tax rate on the highest earners to between 65 and 75% would not harm economic growth at all.
This sounds counter-intuitive only because thirty years of a Republican drum beat has made it seem so. But the greatest period of economic growth in American history took place between 1945 and 1973 when marginal tax rates were initially as high as 91%, only coming down to 70% in 1965. Why? Because people with incomes in the stratosphere can’t possibly spend all they earn. At that level, a higher income only boost one’s self-esteem not one’s consumption and pre-tax income serves just as well as post-tax income for that purpose. Moreover, the best way for small businessmen to reduce a high income tax burden—and increase the value of their holdings over the long term—is by reinvesting in their businesses. So increasing their income taxes is an incentive to, not a burden on, job creation.
The spending cuts proposed by Republicans also fall on working people. Medicare recipients would face higher premiums and co-pays. And states would see federal support for Medicaid slashed, with the result that many people, including many seniors in nursing homes, would face severe benefit cuts.
So the Democrats and President Obama were absolutely right to say reject Toomey’s plan, which was neither balanced nor a bi-partisan. It was one more effort on the part of Republicans to help the rich grow richer while placing the burden of deficit reduction on working people and the middle class. Pat Toomey and his friends in the media can spin all they want. But as a great Republican once said, you can’t fool all the people all the time. Sooner rather than later, the Republicans will discover that the majority of voters will take off the funny glasses and see the world, and Toomey’s ugly proposals, as they really are.