MUSIC TO my ears when Sen. Chuck Schumer’s speech started circulating. Schumer was talking about something Jared Bernstein has warned about too. The highlighted section from Sen. Schumer is the most important.
“If upfront rate cuts are the starting point for negotiations on tax reform, it will box us in on what else we can achieve. Certain conservatives will pocket the rate reductions and never follow through on finding enough revenue elsewhere in the code to reduce the deficit. Or, if they do, it will almost certainly come out of the pockets of middle-income earners.” [Washington Post]
From Bernstein recently, bold mine, all caps emphasis his:
—but most of the actual reform proposals–like those of Rep Paul Ryan, Gov Romney, or the Bowles-Simpson commission–cut rates first, with an agreement to find the base broadeners later (Bowles-Simpson, to be fair, included “illustrative” cuts, but the members of the commission were unable to reach agreement on them).
Therefore, TAX REFORM THAT LOWERS RATES WITHOUT FIRST LOCKING IN HIGHER REVENUES WILL VERY LIKELY FAIL TO RAISE THOSE REVENUES. The sequencing of tax reform therefore must be…
Chuck and CC conclude that tax reform, done badly with the wrong sequencing, could end up exacerbating both inequality and the budget deficit. …
Even if you’re not an economist or don’t understand the intricacies of taxes, you certainly can appreciate one thing, especially after watching the debate since 2011. If revenue models aren’t locked in first, before the tax cut sweeteners, we’ll never see the money.
More from Bernstein today:
As Matt Yglesias notes here, Jan doesn’t get why both parties are so ready and willing to allow the payroll tax cut to expire at the end of this year when unemployment is still so elevated. That 2% cut to take home pay that aggregates up to $120 billion, contributing to precisely the fiscal contraction you see in the second figure in this post (see the black parts of the bars).
I know that some people worry that this tax cut diverts money from the Social Security trust fund, and in doing so, provides great comfort to those who would destroy social insurance, and does so in the name of progressive, Keynesian stimulus, which is pretty diabolical, actually. I hear them and understand their concern–I know how much the enemies of Social Security would love to weaken the trust fund.
But the law specifies that any and all diverted dollars must be replenished by general revenues. A few months back I even identified the ledger within the government accounts that specifies the transfers, and they were, in fact, being made in accordance with the law.
Why is no one fighting to preserve this important stimulus right now?
Why, indeed? I wrote that Mitt Romney should challenge President Obama on the payroll tax cut and for obvious reasons, first of all because it boxes Obama in and challenges him on Tim Geithner’s advice, plus talks directly to the people Romney need to reach in Ohio.
Simpson-Bowles is all the rage, but it shouldn’t be, for a number of reasons, starting with entitlement shenanigans.
That Sen. Chuck Schumer had the chuzpah to take the tax issue embedded in Simpson-Bowles is magnificent.