An emerging conservative criticism of the debt reduction plan released by President Obama’s commission this week is that it would represent a massive tax hike.
What they don’t agree on, however, is how big of a tax increase it would be.
Americans for Tax Reform, usually the most aggressive in denouncing any form of tax increase, comes in on the low end, saying the plan would be a $1 trillion tax hike over 10 years.
But Rep. Paul Ryan, a Wisconsin Republican and the next chairman of the House Budget Committee, says it’s a $2 trillion tax increase.
The Heritage Foundation, meanwhile, says the figure is $3 trillion.
Much of the difference in the numbers comes from different assumptions about what will happen to different programs, what level of troops will remain in Iraq and Afghanistan, and so forth.
But one of ATR’s points is that the overall tax burden on American citizens will go up as a result of this plan. The debt commission plan sets a target for government revenues to be capped at 21 percent of the economy, or gross domestic product.
The historical average for government revenues, however, is 18 percent of GDP.
“This report shifts the debate from where it properly should be – spending – and onto deficit reduction, and thereby tax increases,” said ATR President Grover Norquist, in a letter this week to Republican lawmakers on the commission who supported the plan.
And in fact, the rhetoric from some of the more liberal commission members was indeed focused on deficit reduction.
Andy Stern, the former president of the Service Employees Union International, said that when the commission began its work, “deficit reduction was not a very sexy, front page, high priority issue.”
“This commission changed that – forever,” he said Friday.
ATR has said for years that if conservatives want to reduce the size of government, they should focus on reducing spending, not the deficit, because deficit reduction can be achieved through tax increases just as much as it can through spending cuts.
That idea is at the core of Ryan’s argument, as well.
Ryan argues that while the commission represents its plan as $3 of spending cuts for every $1 in tax increases, that is based on assumptions about future policies that are unrealistic. The technical way of saying this is that the commission depends on a budget baseline that Ryan does not think is the best to use. Ryan uses a different baseline.
Ryan says the plan is actually $2 of tax increases for every $1 in spending cuts.
The commission’s plan assumes, as does President Obama’s budget baseline, that the Bush tax cuts from 2001 and 2003 – currently under debate in Congress now – will not be extended beyond the end of this year. Ryan’s plan assumes they will be extended.
The commission’s plan also assumes troop levels in Iraq of 50,000 for the next 10 years, even though the administration itself plans to greatly reduce that number in the next two years. Ryan assumes a much smaller number of troops, less spending toward that, and thus less need for tax revenue.
And the commission plan assumes that what is known as the “Doc Fix” – a perpetually reoccurring problem where Congress has to approve temporary spending bills to avoid a drop in payments for doctors treating Medicare recipients – will not be paid for. But there is wide political agreement that the problem needs to be addressed, and the current environment in Congress would demand that it be paid for.
To pay for the “doc fix” would cost roughly $300 billion over 10 years. Ryan assumes Congress will pay for it.
When those three assumptions are changed – on Bush tax extensions, war spending, and the “Doc fix,” – the ratio of government revenue to spending savings flips, Ryan says, from majority cuts to majority taxes.
Heritage’s plan has even more assumptions about policies that they say bumps the number on tax increases even higher.
Aides to conservative lawmakers who support the deficit plan, however, said that such talk of trillion dollar tax hikes was nerd number crunching for politics’ sake, and that the imminent threat of a debt crisis requires action of some sort, even if it does not fulfill every wish of conservatives.