I attended a Tax Policy Center event today (audio recording available at that link) which featured Obama economic advisor, Austan Goolsbee and McCain economic advisor, Doug Holtz-Eakin, and at which Len Burman, director of the nonpartisan Tax Policy Center, unveiled the TPC’s latest analysis of the candidates’ tax plans. Bob Reischauer, president of the Urban Institute and former director of CBO (another former boss of mine!), moderated.
Apart from showing slightly lower revenues (larger tax cuts) under the plans of both candidates, the updated TPC analysis is not much different from their earlier version released in June, which I have discussed previously here (the qualitative jist of that still applies). The only more specific thing I learned at this event came when I was called on to ask the last question of the event (thanks, Bob), and I got Austan to more specifically discuss where the Obama campaign estimated the budget deficit would be in 2013 under an Obama Administration. I interpreted his response to suggest an answer of around $400-$450 billion (or something smaller than the current fiscal year deficit, in nominal dollar terms), but you can listen and see how you interpret it.
(Here’s a Financial Times story on the candidates’ deficit reduction plans, by reporter Krishna Guha who attended today’s event…note that $400 bil is about 2 1/4% of an $18 trillion 2013 economy, $450 bil is about 2 1/2% as cited in the article.)
But the question I found most interesting today was one that Doug asked Austan, because it was the second event where I heard Doug question a claim of the Obama campaign regarding their tax plans, and the second time I thought the Obama advisor’s response was less than crystal clear. (The first event was that AARP event I spoke at, where the Obama advisor was Jeff Liebman.) Doug questioned the Obama campaign’s claim that the Obama economic plans represent a “net tax cut”–that is, a reduction in total federal revenues collected. Austan insisted that yes, the Obama tax plan is a net tax cut, and I think he said when you count the health care subsidies (the targeted, refundable tax credits to low-income families for health insurance), which I believe the TPC included in their estimates. So just based on the TPC estimates, I want to take a crack at answering Doug’s question: Is Obama really proposing a “net tax cut”?
The preface to the answer is another question–a “net tax cut” relative to what? Because here is another case where the “baseline” matters, because of the bizarre specification of current tax law, with an ever-growing Alternative Minimum Tax and the Bush tax cuts expiring at the end of 2010, that makes the path of current law very different from the path of current policy extended (the Bush tax cuts and AMT relief going on forever).
So, for taxpayers as a whole, the answer is “yes” compared with current tax law. TPC’s Table R3 shows that under current tax law (Bush tax cuts expiring), revenues as a share of GDP are 19.9% in 2013 and 19.8% over the next ten years (2009-2018). Under Obama’s tax proposals, revenues as a share of GDP are just 18.2% in 2013 and 18.3% over ten years. (Coincidentally, this is about or slightly below the famous 40-year historical average of revenues as a share of GDP.)
But the answer is “no” compared with current policy extended. The same Table R3 shows that under permanent Bush tax cuts and permanently extended AMT relief, revenues as a share of GDP are 18.0% in 2013 and 18.2% over the next ten years. So at 18.2% and 18.3% of GDP for 2013 and ten-year revenue levels respectively, Obama’s tax proposals produce a small net tax increase relative to current policy extended.
Now, it’s certainly true that under the Obama tax proposals, most households (all but those in the top 20%) would enjoy a tax cut compared to either baseline, so for most households individually, the answer is “yes”–President Obama would give them a net tax cut. (For example, the average tax cut received by a household in the middle 20% of the income distribution is $2,132 compared with current law (see Table 2), and $970 compared with current policy extended (see Table 3).) But for the richest of households (those with incomes in the top 1% or above around $600,000), the answer is clearly “no”–President Obama would raise taxes signficantly on these households, whether compared to current law or to current policy. (For example, a top 1% household would pay $38,419 more in taxes compared with current tax law (Table 2), but $133,383 more compared with current policy extended (Table 3).)
Doug, does that help?
Later I’ll get to the kind of spending discipline implied by combining these TPC revenue estimates with the stated 2013 deficit targets of the candidates (those zero and $400 billion targets we heard about today).