The People's Budget is the deficit reduction plan from the Congressional Progressive Caucus. Paul Krugman called it "the only major budget proposal out there offering a plausible path to balancing the budget."
In the next decade, it cuts defense by about $1.8 trillion. It spends $1.7 trillion on education, green energy, infrastructure and other public investments. And it raises taxes by ... well, by a lot.
Let's add it up. First, the plan repeals the Bush tax cuts except for about a trillion in tax credits, like marriage relief and benefits for children and education. That saves three trillion dollars. Second, the plan raises an additional two to three trillion in tax hikes that accumulate at the top, in the form of higher rates for millionaires, higher rates for investment income, fewer tax breaks, and a stronger estate tax. Third, the plan raises another trillion by raising the payroll tax cap to 90% of earnings for employees while eliminating the taxable maximum on the employer side.
This afternoon, I spoke with Andrew Fieldhouse of the Economic Policy Institute, who wrote the plan's technical analysis. He explained that the plan includes $3.9 trillion in tax increases over the next decade, but that doesn't include the savings from allowing the Bush tax cuts to expire. The upshot: This plan raises taxes by $7 trillion over the next decade relative to a plan that would extend the Bush tax cuts permanently.
Is that fair? Fieldhouse responded: "The Bush tax cuts were unaffordable and they didn't work. They're still unaffordable, and they still won't work. The Congressional Progressive Caucus raises taxes on the rich, but we also spread the pain. We don't pretend you can have deficit reduction that holds harmless 97 percent of the country. Liberals are overselling how much we save by just letting the Bush tax cuts expire for the rich."
He's right. Deficit reform has to include tax increases, and tax increases have to include the middle class. That is the one chip both Obama and Ryan refuse to put on the table. But the CPC plan also goes very, very far. The impact of higher payroll, income and investment taxes will be marginal rates and effective tax rates the country hasn't seen in decades. Yes, the middle class got a raw deal from the economy of the last few decades. But this plan could incur a range of negative consequences, the least of which would be increased tax sheltering and creative accounting to avoid effective rates that could climb toward 50 percent.
The CPC plan won't pass Congress, and neither will the Ryan plan. It is best seen as a menu of tax increase options than a budget that would be adopted wholesale. The fact is that we need more revenue, and we should raise it in a progressive fashion. Should we increase payroll taxes, or add a tax bracket for millionaires, or cap their tax benefits, or skim more off their estates? This plan answers (E) All of the Above. I'd prefer (A) through (D), but I'm glad somebody has at least asked the question and offered some answers.