The Gingrich Tax Plan Is a Disgrace, and It's Not Partisan To Say So

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Screen Shot 2011-12-15 at 2.57.22 PM.pngGingrich tax plan. Y-axis: Percent change in effective federal tax rate per income group listed along X-axis.

This week, I posted three very tall graphs that were ripped to shreds in the comment section, to put it lightly. These graphs showed how much richer millionaires would be under the tax plans of Herman Cain, Rick Perry, and Newt Gingrich. The graphs were statistically honest, but they were also something of a visual stunt (see: the bottom of this post). Since all three tax plans would slash taxes on investment income, which is concentrated in the top quintile, they returned much, much more money to the rich. I took the income data and graphed it along a very, very unflattering Y-axis.

And this was the chief complaint among the commenters. As one smartly put it, "Absolute change in dollars paid is not a relevant metric for evaluating the progressivity/regressivity of a change in the tax code. You have to use something like change in percent of income paid."

What the commenter is referring to is "effective federal tax rate." He's right. The most important story is what happens to effective rates under the Gingrich plan. So I've made that graph and put it at the top of this post. Using data from the nonpartisan Tax Policy Center, it shows what you would expect from a plan that eliminates capital gains taxes: Effective tax rates go down for every income group but they go down the most for millionaires under the GOP presidential plans.

But there is larger point to make that was missed in the tall columns (my fault as much as anyone's). Here's what I'm not objecting to: I'm not objecting to the abstract fact that the rich have more money than the poor, or that a progressive tax system taxes them more, or that a 1% tax cut across the board means more after-tax money for a millionaire than a middle class family -- after all, 1% of one million is more than 1% of 40,000. These are all facts.

What I am objecting to is the GOP presidential field's (these three, anyway) morally and arithmetically indefensible position on taxes. Let's step back for a moment to take stock of the broader discussion.

Taxes as a share of GDP are at a half-century low, thanks to 30 years of tax cuts and one horrible recession. Debt as a share of the economy, meanwhile, is at a half-century high. It is reasonable to expect that a deficit reduction deal in the next few years is not only necessary, but also will include a tax increase that will have to begin with the rich and extend into the middle class to help preserve our good standing with investors. We're not going to eliminate Medicare. We're not going to eliminate Social Security. We're not going to outsource the Pentagon. Spending will be cut. And also, revenue must be raised, and not just by praying to the growth gods.

But Gingrich's plan (similar to Cain's and even more similar to Perry's) doesn't raise revenue. It cuts revenue by $1 trillion per year, which is more than the cost of Medicare in 2013. It doesn't raise taxes on the rich. It cuts taxes on millionaires by hundreds of thousands of dollars. It doesn't preserve the necessary progressivity of the tax code -- necessary because, for reasons both natural and unfortunate, we are living in a period of great wealth accumulation at the top. It makes the tax code regressive. Millionaires, with their investment income now tax-free, would pay a lower effective rate than tens of millions of middle class families making as little as $40,000 per household.

The bottom line is that this proposal is disgraceful and uniquely pandering. I animated it with an intellectually cheeky, albeit statistically honest, graph. I'm sorry if it was a distraction. The bottom line is more important than the tall columns.

THIS IS NEWT GINGRICH'S PLAN
Y-axis: $ income in savings under Gingrich tax plan; X-axis: household income

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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