Friday, November 19, 2010

The Progressivity of Bowles-Simpson

Howard Gleckman reports,
The Tax Policy Center has taken a preliminary look at one version of the tax plan offered by Erskine Bowles and Alan Simpson. And Paul Krugman & friends can rest easy. The Bowles-Simpson proposal is indeed an across-the-board tax increase-- and a fairly progressive one at that. In 2015, the lowest earners would face an average cut in their after-tax income of 3.4 percent or about $400. Middle-income households (those earning an average of about $60,000) would see their after-tax incomes fall by 4 percent or about $1,900. On the other end of the economic food chain, the top one percent of earners (who earn an average of about $2 million) would lose about $77,000 (5.3 percent) while the top 0.1 percent would see their after-tax incomes cut by nearly 8 percent, or close to $500,000.
The TPC estimate comes with a number of caveats. It assumes essentially the law we had in 2009. The 2001 and 2003 tax cuts still apply in 2015, about 25 million middle-income households continue to be protected from the Alternative Minimum Tax, and the 2009 estate tax is back on the books. Given political realities these days, that guess is a good as any, but it is a guess....
The TPC estimate is also static, thus it assumes no behavioral response to the proposed tax law changes. However, thanks to lower marginal rates and the smaller deficit in the overall plan, the economy could grow faster than the co-chairs predict and generate more tax revenue....
Thus, Bowles and Simpson have a clear goal: They want to raise taxes across the board while lowering rates. And TPC’s preliminary projections suggest that’s pretty much what they’d do.