“The People’s Budget”
It is endorsed by Paul Krugman and also Jeffrey Sachs, so I thought I would give it a look. It is from the Congressional Progressive Caucus. One simple question is to ask how the rich are taxed:
1. There are separate rates in the mid- to high forties for millionaires, with strict limits on itemized deductions.
2. “Raise the taxable maximum on the employee side to 90% of earnings and eliminate the taxable maximum on the employer side.” With volatile incomes, it’s tricky to translate that into an expected marginal rate or to figure out how much is infra-marginal. See the technical appendix, p.8, for more details, though I find the entire proposal here poorly explicated. In any case, it’s a big tax increase.
3. Tax capital gains and dividends at the normal income rates. (I am not sure how loss offsets are to be treated, though it could make a big difference and significantly boost the demand for volatile stocks.)
4. I’m not sure what happens with state-level income tax rates but there’s certainly, in the proposal, no talk of them going down. And since they’re probably not free market deregulators at the state and local level, I suppose I expect those taxes to go up, given Medicaid burdens, pension problems, ailing educational systems, and so on.
5. Estate taxes would be raised significantly (sock it to Boy Mankiw!), as would corporate income taxes, there would be new financial transactions taxes, there would be a new bank tax, and tax enforcement would be stiffer.
6. There are, by the way, no proposed cuts in benefits.
What is the final net income and also capital gains rate for wealthy taxpayers? It’s hard to say exactly, but north of seventy percent for income rates (including state and local rates), and near fifty percent for capital gains rates, is not hard to believe.
Quick quiz #1: What are the capital gains tax rates in the European social democracies?
Quick quiz #2: From the climate change debates we learn the value of scientific consensus; what percentage of Democratic public finance economists would favor top income and capital gains rates in the neighborhood of seventy and fifty percent? Some of them have read and digested, for instance, this paper by the impressive Raj Chetty.
Quick quiz #3: Does the technical report offer estimated labor supply and investment elasticities in response to these higher tax rates? (p.s. the answer is “no.”)
I can tell you this: in the technical appendix; the assumption is that the net effect on growth, from investment changes, after all the new public sector investment is called into place, is a positive [sic] 0.3%.
There have been some good criticisms of the funny assumptions behind the Ryan plan, but actually this budget isn’t better, either in terms of its final conclusions, its adherence to best scientific practices, or its transparency in getting to its results. Should we not apply equally high standards to both the Ryan budget and this? There are plenty of good arguments that taxes have to go up, but this particular proposal isn’t one of them. INSERT SNARKY CLOSING OF YOUR CHOICE I WON’T DO IT FOR YOU.