Can the Joint Committee get credit for raising tax rates?

Yesterday I explained my understanding of how the Joint Committee would treat tax increases. The President’s NEC Director, Gene Sperling, has a perplexing description that conflicts with mine. I’ll examine that in a separate post. Here I’ll try to respond to a question from Mickey Kaus. I’ll make his example even simpler.

The top individual income tax rate this year is 35%. Under current law it will increase to 39.6% on January 1, 2013.

Yes, the Joint Committee could start their $1.5 T deficit reduction effort by extending the 35% rate for two more years. That would score as a revenue loss (since they’ll use a current law baseline, despite what Mr. Sperling suggests) and therefore a deficit increase relative to current law, let’s say of $150 B.

Since they started by increasing the deficit relative to current law, the Committee would need to find $1.65 T of deficit reduction pain to hit its target, since it starts out $150 B in the hole.

If the Committee produces a $1.65 T deficit reduction package, then dials it back under interest group pressure to $1.5 T, yes, they can get “scored” with $150 B of deficit reduction by “increasing” that top marginal rate back up to 39.6%.

In this example the Committee gaveth to the the rich, and then it taketh away from them. I think the Committee can only get scored with deficit reduction for raising tax rates if:

  • it starts its process by “cutting” those rates and makes its deficit reduction job harder, then later undoes that all or part of that decision;
  • or it proposes to raise rates before 2013 or above the current law rates for 2013 and later.

The second bullet means Committee would get scored with deficit reduction if they “repeal tax cuts for the rich” effective in 2012, or if they raised the top rate to 45% in 2013, above the current law 2013 and Clinton-era 39.6% rate.

Other than that you’re just going in a circle.

Mr. Kaus also wonders what good is this Joint Committee process is if we can expect other deficit-increasing legislation outside of it, like a separate bill to extend the Bush-Obama tax rates in late 2012. It looks like the President and Senate Democrats may also be preparing a deficit-increasing we-used-to-call-this-a-stimulus bill.

I see the Joint Committee as operating like a traditional reconciliation process rather than as a substitute for a budget resolution. The Committee has been set up to produce incremental deficit reduction, not to lock in an entire budget framework. So Mr. Kaus is right, depending on how you measure deficit reduction, a successful Joint Committee process could see its work “undone” by later legislation to keep tax rates low, patch the AMT or Medicare doctors’ payment rates, or ready more shovels. But those separate legislative efforts will happen with or without the Joint Committee, right? So a deficit hawk should like having such a committee, no?

p.s. I think I explained that the Committee would get scored with deficit reduction for recommending other non-rate tax increases. That’s a slightly different characterization than provided by Mr. Kaus:

as Hennessey admits, the SuperCongress committee would have an incentive to recommend “new” taxes

This is, however, only a quibble. I’m a regular reader and fan of Mr. Kaus, especially when I disagree with him.

Correction:  The Committee’s deficit reduction target is $1.8 T, not $1.5 T as I wrote above. The logic still holds and I’m not going to go back and edit what’s above for fear of sowing even greater confusion. This is difficult enough.



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