Paul Ryan’s budget proposal leaves room for negotiation on tax rates for high earners. (AP Photo/J. Scott Applewhite.)
President Obama started off his second term with a major victory: getting Congress to pass a bill eliminating the Bush tax breaks for individual earners making over $400,000 per year.
This was a progressive goal nearly from the moment the Bush tax plan was passed; John Kerry railed against Bush taxes in 2004, and ending the high-earner tax breaks was a central part of Obama’s 2008 and 2012 presidential campaign. (For obviously good reasons: the Bush rates eased taxes paid on the rich at the expense of middle-class taxpayers, and studies show that when top marginal tax rates are higher, American economic growth tends to be higher.)
But will that victory survive the end of this Congress? It’s quite possible it won’t. The administration, though not eager to make a big public show of it, made it known from the beginning that it would be willing to lower the top rates again during comprehensive tax reform that closed loopholes for the wealthy elsewhere. Treasury Secretary Jack Lew made this explicit before the Senate Finance Committee last month.
Now, the budget plan released today by Senate Democrats indicates for certain that they, too, are on board. As Sam Stein reports:
The budget, unlike Ryan’s, doesn’t close the door on going beyond the fiscal cliff deal either; it calls for the continuation of current tax rates for middle and lower class Americans but does not specify whether current rates should be protected for high-end earners.
A top Senate Democratic aide said that the specifics—including where rates should be set, which loopholes should be closed, and which expenditures should be ended—would be left to the Senate Finance Committee.
This is a clear roadmap to a scenario in which the top marginal rates are once again lowered in exchange for new revenue from closed loopholes and exemptions elsewhere.
Paul Ryan’s budget map, also released today, might actually complement this approach. Ryan’s budget has two tax brackets, at 10 and 25 percent, but importantly only the 10 percent rate is locked in—the 25 percent bracket is just a “goal.” The cynical reason Ryan did this is that it makes his tax plan impossible to score, but what if it’s also because he’s playing footsie with Democrats on the top marginal rate? In other words, what if Ryan is willing to negotiate the 25 percent bracket upwards?
This is a situation progressives inside and outside Congress will no doubt watch closely. There’s certainly a case to be made that lowering the top rates again is acceptable if, at the same time, many other wealthy tax breaks are ended. Say, for example, if the Buffet Rule is enacted, which limits the deductions the wealthy can take; capital gains and dividends are taxed at an even higher rate than they were under the fiscal cliff deal; the S-corporation loophole is closed; the estate tax is raised and broadened to more wealthy families, and so on.
But Republicans are deeply averse to many of these things, and the congressional sausage factory might grind out a bill that either doesn’t end many of these loopholes or does so in an easily avoidable way—yet, the top rates would still be lowered. This is the danger of rate-lowering tax reform. Progressives can’t bank a victory on tax equity just yet.
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