Liberals’ Stealth Budget Solution Raises Taxes on Rich, Saves Social Security
Unlike unpopular budget plans by Obama and Paul Ryan, the People’s Budget saves Social Security, jacks up taxes on the rich, and produces a surplus within a decade. David A. Graham explains why the plan is flying under the radar.
As members of Congress talk to constituents during recess, they’re getting an earful. Just as angry crowds of constituents greeted Democratic members during the health-care reform debate, angry voters are coming out to tell their representatives that they’re mad about Paul Ryan’s proposed changes to Medicare and Medicaid. They want to know why corporate giants like GE aren’t paying any taxes. And they want the rich to shoulder more of the tax burden. Even President Obama’s plan is too lenient, some say.
So what if there were a plan that proposed keeping entitlements intact, closed corporate tax loopholes, and jacked up taxes on the rich—all while producing a budget surplus within a decade? As it turns out, there is—and has been for several weeks. Called “ The People’s Budget,” it was released by the Congressional Progressive Caucus in early April. But if this is the first you’ve heard of it, don’t feel too bad. The plan has flown almost totally under the radar—the odd Paul Krugman column and Economist blog post excepted. But with anger about cuts starting to crystallize, that might change.
“It’s gaining some traction—more people are writing about it, more people are aware,” says superstar economist Jeffrey Sachs, who was an early advocate of the plan. “It started being overshadowed by Ryan and the president’s plan. I find neither of those adequate, and Ryan’s plan is now absolutely being seen for what it is: egregiously unfair and absolutely unacceptable.”
But why has it taken so long? One factor is pure timing: Ryan grabbed the spotlight by striking first. Obama, with the bully pulpit of the White House, had no trouble getting attention. But the CPC was late to the party. And numbers are a factor too. Whereas Ryan is the budget chief for the House majority, the CPC is a minority within a minority—the outnumbered left wing of the outnumbered Democrats.
Perhaps most important, though, is the question of “realism.” “We’re not getting attention because the attitude is, ‘It’s a great effort, but it will never happen,’” says Rep. Raul Grijalva, an Arizona Democrat and co-chair of the CPC. But pointing at recent polls that show widespread opposition to entitlement cuts and support for higher taxes on the rich, he insists that’s wrong: “This is more than just a message. We put a budget together that reflects desires of the American people, based not just on conversations with constituents but on polling. People haven’t been given the option.”
“Why is cutting Medicare, Medicaid, and Social Security courageous, but raising taxes is not?”
So what does the plan do? Unlike Ryan’s plan—or even Obama’s—the People’s Budget focuses on raising revenues, rather than cutting spending: of the $5.6 trillion it says it would cut from the deficit, only $1.7 trillion would come from spending cuts, with $3.9 trillion coming from higher government revenues. The plan forecasts a modest surplus by 2021. It gets there by taxing the rich aggressively, creating higher income tax brackets and rescinding the extension of the Bush tax cuts passed in December. It also imposes a strict estate tax. Unlike President Obama’s plan, which lowers corporate tax rates while closing loopholes, the CPC would leave the rate unchanged and slash some subsidies.
Elsewhere, it would create a public option for health care; allow the government to negotiate prescription prices with manufacturers; spend money on job creation, infrastructure, and housing; save by ending American involvement abroad; and cut the defense budget.
Sounds pie in the sky, right? The plans backers admit that it’s, um, unlikely to be enacted as is. They point out, however, that Ryan’s plan is no more realistic: polls suggest widespread disapproval, although Senate Majority Leader Harry Reid has announced he’ll hold a vote on the budget. But that vote is a political ploy, and the president would veto it anyway. Grijalva says the point is to establish a starting place for negotiations.
“We felt there was a frustrated constituency out there who felt we were offering an alternative. The Democrats are going into negotiations with Boehner with one hand tied behind our back,” he says. “We’ve played around the edges on many policy decisions in Congress, tried to straddle the middle, and the results are not good.”
And in fact, the left is rejoicing. “It’s an extremely practical and—in terms of American political opinion—a very mainstream budget,” says Joan McCarter, senior policy editor for Daily Kos, the liberal standard-bearing blog. “What the Ryan budget has done is draw the Overton Window so far to the right that we are going to end up with a very center-right budget,” she says, referring to the idea that a highly partisan proposal can shift the political center toward it. The People’s Budget could start to tug it back, she says.
It’s also far more courageous than Ryan’s Path to Prosperity, she says. That plan has been called bold because it proposes entitlement cuts, but that’s been Republican dogma for years. “Why is cutting Medicare, Medicaid, and Social Security courageous, but raising taxes is not?” she asks. “In this environment, raising taxes is pretty courageous.”
Politics aside, there’s the matter of how realistic the People’s Budget is as policy. While liberal economists like Krugman, Sachs, and Dean Baker have lavished praise on it, it’s not a flawless document, says Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center.
“The math is not unreasonable, but the proposals themselves raise a lot of policy questions,” Gleckman says. “A top tax rate of almost 50 percent—people won’t pay it. People will find ways to game the system.” The wealthiest, those most affected by the tax hikes, are more able to juggle funds and compensation to put off or avoid taxes, he notes. The difference between corporate tax rates and personal tax rates will also entice some businesses to legally restructure themselves to pay lower taxes. Both factors mean the revenue projections are optimistic.
And Gleckman found some of the plan’s choices confusing. Although the CPC budget caps itemized deductions—a tax benefit that disproportionately benefits the wealthy, who are far more likely to itemize—it does little to close other “tax expenditures”—really, loopholes that cut into the government’s take.
“I accept that as legitimate criticism,” Grijalva concedes. “Cap and trade’s not in there as a revenue producer, either. I’m not saying our budget isn’t a work in progress, but the fact that more people are reacting to specifics indicates that the work we were putting into it was good.”
But getting people talking is just a start. After speaking to a reporter about the CPC plan, Grijalva hung up and prepared to go to his eighth constituent meeting of the congressional recess—trying to get the word out to a few more voters, trying to close the publicity gap between it and its rivals, a few Americans at a time. He’s got a lot of distance to close.
David Graham is a reporter for Newsweek covering politics, national affairs, and business. His writing has also appeared in The Wall Street Journal and The National in Abu Dhabi.