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In his speech on Wednesday addressing the budget deficit, President Obama skewered the House Republicans’ budget plan as painting “a vision of our future that’s deeply pessimistic.” He pointed out that if enacted, the budget proposed by House Budget Committee Chairman Paul Ryan would mean
– “A 70 percent cut to clean energy. A 25 percent cut in education. A 30 percent cut in transportation.”
– “Cuts in college Pell Grants that will grow to more than $1,000 per year.”
– Typical 65-year-olds would spend nearly $6,400 more annually on health care.
– Medicare would be turned into a voucher, and “if that voucher isn’t worth enough to buy insurance, tough luck – you’re on your own.”
– 50 million would lose health insurance, resulting from Medicaid cuts and the repeal of the health care reform law.
– A trillion dollars in tax breaks for the rich (the extension of the parts of the Bush tax cuts that Obama wants to see expire).
“There’s nothing courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill,” President Obama said of the Ryan budget plan.
Ryan’s Goal Is to Shrink Government, Not the Deficit
A report last week from CTJ explains that Ryan’s budget actually reduces revenue, compared to current law and compared to Obama’s proposed budget, which makes it pretty obvious that deficit reduction is not its real motivation. The Ryan plan would essentially make permanent the level of taxation enacted under President Bush and then overhaul the tax system to eliminate loopholes and put the revenue saved towards rate reductions.
The result would be that the highest rates for individuals and corporations would be just 25 percent, and tax revenue collected would equal just between 18 and 19 percent of GDP. To put this in perspective, note that spending was about 21 percent of GDP under President Reagan – and that was before the baby-boomers were retiring, before health care costs had climbed so dramatically, and before we became engaged in multiple conflicts in the Middle East.
The Ryan plan does not spell out in any detail what the resulting tax system would look like – and there’s a specific reason for this. Last year, when Congressman Ryan presented a detailed plan that would allow people to pay income taxes at a top rate of 25 percent, Citizens for Tax Justice found that the plan would cut taxes, on average, for the richest ten percent and raise taxes, on average, for all other income groups. Remarkably, the plan would also lose $2 trillion over a decade.
Even President Obama’s Approach Could Be Dramatically Improved
While President Obama’s approach is vastly more responsible and reasonable than the House Republicans’ plan, it still doesn’t do enough to raise revenue. President Obama would allow the Bush tax cuts for the rich to expire and wants to limit tax expenditures, which are the equivalent of spending but administered through the tax code.
Like his fiscal commission, Obama says he wants an overall deficit reduction plan that cuts spending by two dollars for every one dollar of new revenue. But given that we are one of the least taxed countries in the developed world, at very least that ratio should be reversed. To be sure, much of the new revenue should come from cutting what amounts to spending programs implemented through the tax code, as the President argues.
But it’s unclear exactly what he means when he says he wants to raise $1 trillion in new revenue. If he aims to raise $1 trillion compared to the “current policy baseline,” which assumes that the Bush tax cuts are extended forever, that is mostly accomplished by allowing the tax cuts for the richest two percent to expire, as he has already proposed.
But surely more Americans than just the richest two percent can afford to pay more, especially if budget reform is going to involve “shared sacrifice,” as President Obama says. And surely we can do more than just allow part of the Bush tax cuts to expire, which will happen anyway if Congress does absolutely nothing.
Finally, the President reiterated his call for corporate tax reform to make our businesses “more competitive.” Frankly, what we need is to make our businesses pay more in taxes, particularly our corporations. Even Bush’s Treasury concluded in a 2007 report that the share of profits paid in taxes is lower on average for U.S. corporations than corporations of other developed countries. To not even attempt to get more revenue overall from our corporate tax system is incomprehensible.