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The People's Budget

Phil Klein has a leaked version of an alternative budget plan by the Congressional Progressive Caucus, dubbed "the Peoples' Budget". Unfortunate naming instincts aside, the outlines definitely make a contrast to the Ryan Plan:  

To extend the long-term solvency of Social Security, it would propose dramatically increasing payroll taxes on both the employer and employee side, and funneling the money into even more generous benefits.

Payroll taxes are economically destructive, because they make it more expensive for employers to hire new workers, meaning lower real wages and higher unemployment.

Yet the tax increases wouldn't end there. The People's Budget would rescind last year's tax deal to raise rates on higher income levels, boost taxes on capital gains and dividends, increase the estate tax, institute three "millionaire tax rates," with the highest reaching 47 percent, tax corporate foreign income, impose a "financial crisis responsibility fee," and institute a "financial speculation tax."

Overall, taxes would rise to 22.3 percent of the economy, compared with 18.3 percent under the Ryan proposal.

I actually think it's remarkable that the percentage is so low.  A 47% federal tax rate on top incomes, plus increases on estates, capital gains, and dividends, and all you get is . . . 22.3% of GDP?  A bare 1.3% above the collections envisioned by Simpson-Bowles?

If that's all the Progressive Caucus thinks we're going to get out of the wealthy, I imagine that the CBO forecasts will be even less optimistic.  Which is hardly going to be enough, given that the big idea for entitlement cost control in the "People's Budget" is . . . making Social Security more generous + public option for ObamaCare and quasi-price controls for pharmaceuticals.  Whether or not you think these things are a good idea, they are not, all by themselves, going to solve Medicare's cost growth problem.

No, if you want to get the budget under control without meaningfully cutting into entitlements, you're going to need to hike taxes substantially on the middle class.  I'm waiting for the first politician to say this out loud.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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