Right Thinking From The Left Coast
If everything seems under control, you're not going fast enough. - Mario Andretti

Thursday, April 07, 2011

The Anti-Ryan

The Congressional Progressive Caucus is working on a counter-proposal to Paul Ryan’s roadmap.  And ... my God.

To extend the long-term solvency of Social Security, it would propose dramatically increasing payroll taxes on both the employer and employee side, and funneling the money into even more generous benefits.

I’ve blogged before on why this would be a bad idea.  It would drive the marginal tax rate on “the rich” over 50%.  Payroll taxes are a big driver of unemployment, significantly increasing the cost of hiring employees. And it would put more money into the non-existent “trust fund”.  But at least it would destroy the lie that Social Security is an investment system.  It can’t be when benefits are capped but taxes are not.

Yet the tax increases wouldn’t end there. The People’s Budget would rescind last year’s tax deal to raise rates on higher income levels, boost taxes on capital gains and dividends, increase the estate tax, institute three “millionaire tax rates,” with the highest reaching 47 percent, tax corporate foreign income, impose a “financial crisis responsibility fee,” and institute a “financial speculation tax.”

We’re now talking marginal tax rates of nearly 70%, once you include payroll and state income taxes.  Even Paul Krugman would find it difficult to argue that a 70% marginal rate would not have a bad economic impact.  The corporate foreign income tax is perhaps the most pernicious and economically destructive proposal.  It would mean that foreign earnings for firms based in the US would be taxed twice—once in the foreign country, once in the US.  But earnings for firms based in other countries would only be taxes once (even European socialist states aren’t stupid enough to punish companies for selling things overseas).

Here’s the punchline, though:

Overall, taxes would rise to 22.3 percent of the economy, compared with 18.3 percent under the Ryan proposal.

That’s only slightly higher than Simpson-Bowles, which is not nearly as economically destructive.  So they’d cripple American business for ... almost nothing.  And note that the CBO has yet to score this.  I suspect the revenue would be a lot less than they expect.  I also suspect that, overall, without any changes to Medicare, the plan simply won’t work.

There’s more.  $1.45 trillion more in stimulus spending, a public option for Obamacare and price controls on prescription drugs are highlights (since we all know how well price controls work).  At least there’s some cuts in defense spending.

Even if you take the worst rhetoric about the Ryan plan at face value (that it guts entitlements to cut taxes for the rich), it is still infinitely preferable to this.  The Congressional Progressive Caucus—the largest Democrat caucus, incidentally—deserves some credit for putting forward an honest vision of the America they want—one with the most destructive tax regime in the developed world, an endless river of pork barrel spending and a socialized retirement and healthcare system.

I really really really hope the Democrats roll out his proposal.  Because nothing would generate more support for the Ryan plan or Simpson-Bowles than seeing the alternative.

(And please, before you tell me that the 1950’s prosperity was built on huge marginal tax rates, read this.  The effective tax rate in that “golden era”—an era of 50-hour work weeks, racial discrimination, and a lack of employer-based retirement and insurance for anyone who wasn’t in a union that had a monopoly stranglehold in the auto industry—was much lower due to copious tax loopholes.)

Posted by Hal_10000 on 04/07/11 at 05:19 PM in Politics   Law, & Economics  • (0) TrackbacksPermalink
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