A SUPER OFFER REJECTED:
Pessimism is growing about the Congressional super committee on deficit reduction, so we were eager to listen yesterday when Pat Toomey called with the latest lowdown. Most notably, the Pennsylvania Senator explained why he and his five fellow Republicans have decided to put new tax revenues on the table.
In return for these cuts in deductions, Mr. Toomey says the top individual tax rate would fall to 28% from 35%, with the other tax-rate brackets falling by similar proportions. The current top rates for capital gains and dividends (15%) and the estate tax (35%) would remain unchanged. The GOP negotiators agreed to the Democrat request that these tax changes be statically scored—which assumes no revenue gains from economic growth—yet they would still yield $250 billion in additional revenue over a decade even with the lower tax rates.
"It's a bitter pill to accept new statically scored revenue," says Mr. Toomey, "but I think it's justified to prevent the tax increase that's coming" in 2013. Given the history of revenue gains after marginal-rate tax cuts, the tax windfall for the Treasury would likely far exceed $250 billion over a decade.
Another $40 billion or so in new revenue would come from changing the formula for adjusting tax brackets for inflation. And $200 billion more would come from a variety of asset and spectrum sales, user fees, tax compliance and other things—all scored on a static basis by the Joint Tax Committee. Mr. Toomey says the Members have also made progress on a corporate tax reform that would cut the rate to 25% in return for eliminating deductions, though any agreement would probably have to be done in two stages to work out the details.
As for spending cuts, Democrats would only have to agree to $750 billion over 10 years. About $180 billion of that would come from changing the inflation calculation for benefits, so the other reductions would hardly be extreme. Keep in mind that any changes in ObamaCare (with its 3.8-percentage point payroll tax increase) and major reform of Medicare and Medicaid were long ago ruled out by Democrats.
Despite the modest spending cuts, the deal Mr. Toomey describes would be a big political win for all concerned. It would give the economy a major lift by taking the tax increase now scheduled for 2013 off the table, and it would show that Congress can at least make some progress toward controlling federal spending. With a ratio of $1.50 in spending cuts to $1 in tax increases, the offer is far better for Democrats than the $3 to $1 ratio that President Obama's own Simpson-Bowles deficit commission recommended.
Mr. Toomey says Democrats nonetheless rejected this offer on Tuesday night, a fact that leaves him "enormously frustrated." He says Democrats are insisting on at least $1 trillion in new revenues while refusing to allow any reduction in tax rates or to stop the tax increase that will hit in 2013. The freshman Republican now fears the talks will end with a whimper of small revenue and spending measures that will do little to help the economy or the federal fisc.
HERE is a negative review of the above plan. One can see easily that behind the points in the negative article are the total disagreement in philosophy that's so basic to the differences between Republicans and Democrats and what helps our economy and what doesn't. I urge you to read both and remember that as you read.