Update: Seth Hanlon has now revised his post at ThinkProgress to include an apples-to-apples comparison of tax changes under the Zero Plan using a current law baseline.
Today, the Center for American Progress is out with an attack on Jon Huntsman’s new tax plan. But in the process of criticizing the Huntsman plan, CAP’s Seth Hanlon launches a specious attack on the “Zero Plan” proposed by the Simpson-Bowles deficit commission last year, which shares many features with the Huntsman plan.
Under the Simpson-Bowles Zero Plan, Hanlon writes:
According to the nonpartisan Tax Policy Center, on the whole, middle-class families would be forced to pay $1,890 in higher taxes under the no-tax expenditure plan compared to what they pay now. The richest one percent, meanwhile, would get an average tax cut of more than $7,000, because they benefit the most from the lower rates.
Indeed, if you follow that first link, you see that the Bowles-Simpson plan raises the average tax bill of a filer in the middle income quintile by $1,890, compared to current tax policy. But then you follow the second link and… wait a minute, now we’re looking at a different table. What happened?
When looking at how the Zero Plan would affect middle class families, Hanlon uses a current policy baseline. But then within the same paragraph, he switches to a current law baseline to look at Zero Plan effects on high income filers—that is, he compares their tax bills under the Zero Plan not to today’s tax policy, but to what they would owe if all the Bush Tax Cuts expired and the AMT was not patched.
If you compare middle and high income filers on an apples-to-apples basis, you get a very different picture than the one Hanlon paints. Compared to current policy, the Zero Plan is an average tax increase of $1,890 for tax units in the middle quintile, and an average tax increase of $77,409 for tax units in the top 1 percent. But who’s counting?
This is a rhetorical trick that you often see from commentators on the left discussing the Bush Tax Cuts. Want to extend them for the wealthy? Why, that’s a tax cut for the rich!* Threaten to let the whole thing expire if you can’t get an extension for the wealthy? That’s a tax increase on the middle class!** Except, generally, the footnotes are omitted.
The sad thing here is that we could have a productive discussion on this topic—there is no good reason for liberals to hate on the Zero Plan framework. In fact, the Progressive Policy Institute has put out a number of mostly good ideas about how the Zero Plan can be tweaked to make it a bit more progressive. The PPI report reflects a recognition that tax reform deals with two separate questions: (1) should the income tax contain a litany of deductions and credits that force us to impose higher marginal tax rates?, and (2) how progressive should fiscal policy be? The Zero Plan does a pretty good job dealing with (1). If you don’t like its answer on (2), you can propose relatively modest adjustments that still deal effectively with (1) instead of just demonizing the plan.
There’s actually a third question that we should be asking about tax reform, which is how the tax code should differentiate between labor and capital income. Here, I like Huntsman’s answer better than the one we get from Simpson-Bowles or PPI. However, the favorable tax treatment for capital that Huntsman proposes leaves him short on total revenues—he’ll need an offsetting tax increase which he hasn’t proposed.
That’s not the only problem with the Huntsman plan—I also think it’s unwise to repeal the Earned Income Tax Credit and the Child Credit. I’ll have another post later today with more detailed thoughts on what Huntsman gets right and what he gets wrong.
*Relative to current law.
**Relative to current policy.