Bowles-Simpson deficit plan: tax hike or tax cut?

Their deficit plan hikes taxes but lowers income tax rates at the same time.

By , Guest blogger

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    Erskine Bowles (left) accompanied by former Wyoming Sen. Alan Simpson, co-chairmen of President Barack Obama's bipartisan deficit commission, gestures while speaking on Capitol Hill in Washington Nov. 10. Their deficit plan raises taxes but lower income tax rates.
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Fascinating to read the morning-after criticism of the tax provisions of the Bowles-Simpson deficit reduction plan. Many commentators on both the left and the right hate it—but for entirely contradictory reasons.

Many on the left are focusing on the across-the-board rate reductions, and they are furious that they’d benefit high-earners as well as everyone else. But they are ignoring both the provisions that would tax capital gains and dividends at ordinary income rates and, most importantly, the proposal’s overall impact: $750 billion in income tax hikes and additional increases and in the Social Security payroll tax for high-earners and ni the gas tax.

For instance, Paul Krugman, who really should know better, wrote, “If you’re sincerely worried about the US fiscal future — and there’s good reason to be — you don’t propose a plan that involves large cuts in income taxes.” Joan McCarter over at Daily Kos calls the plan “massive tax cuts for wealthy, pain for the rest of us.”

By contrast, conservatives are furious exactly because the plan hikes taxes on investment income and raises overall taxes. They are completely ignoring the benefits of eliminating targeted tax subsidies and lowering rates, having forgotten, apparently, that this was exactly the goal of Ronald Reagan’s tax reform. Here is the always predictable Americans for Tax Reform: “This commission is merely an excuse to raise net taxes on the American people. Support for the commission chair plan would be a violation of the Taxpayer Protection Pledge which over 235 Congressmen and 41 Senators have made to their constituents.”

Now, if Bowles and Simpson could just get the left to recognize that the plan is in fact a significant tax increase and convince the right that it cuts income tax rates more than at any time since Reagan, maybe they could get somewhere.

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