JONATHAN CHAIT MAY 26, 2011
Ross Douthat says the Republicans made an "unforced error" by appearing to cut taxes for the rich even though they wouldn't really do so:
By trumpeting absurd Heritage Foundation growth projections while staying vague (for procedural reasons related to House budgeting, but still …) on how its rate-lowering tax reform would be paid for, the budget made it easy for liberals to claim that the Republicans weren’t just cutting Medicare, but that they were doing it to pay for voodoo economics and tax cuts for the rich. These claims were unfair: The Ryan budget didn’t base its deficit projections on the Heritage numbers, and Ryan’s Medicare reforms assumed revenue-neutrality in the tax code even it the budget didn’t specify how that neutrality would be achieved.
The defense of Ryan here is that his tax plan is so vague -- proposing specific cuts that benefit the rich with vague loophole closures to pay for it -- that you can't say for sure who will pay more. But even that weak defense is not true. I'll quote David Frum:
Because Ryan’s tax cuts were specific and his promises of revenue-raising reform ultra-vague, he had no defense to the attack that his tax reform involves massive downward redistribution of the tax burden. And after all, it’s hard to imagine what tax enhancements would counteract the distributional effect of a cut in the top rate of income tax from 36% to 25%. Ending the mortgage interest deduction for mortgages of between $417,000 and $1,000,000 (a good idea!) would not do it. Ending the deductibility of state and local taxes (another good idea) would not do it. A carbon tax (good idea again) for sure would not do it. Ditto a VAT. All of those measures would be good ways to raise additional revenues while leaving the current rates in place. But as offsets to a huge upper-income tax cut, they look like a shift of the tax burden from the upper class to the more affluent parts of the middle class.
The only possible way to cut the top tax rate to 25% while maintaining progressivity at even Bush-era levels would be to end the preference for capital gains and dividend income. But Ryan's plan won't do that. He doesn't say he will do, but his Roadmap eliminated those taxes, and the "Path to Prosperity" uses well-understood code words for lowering or eliminating taxes on capital income:
Raising taxes on capital is another idea that purports to affect the wealthy but actually hurts all participants in the economy. Mainstream economics, not to mention common sense, teaches that raising taxes on any activity generally results in less of it. Economics and common sense also teach that the size of a nation’s capital stock – the pool of saved money available for investment and job creation – has an effect on employment, productivity, and wages. Tax reform should promote savings and investment because more savings and more investment mean a larger stock of capital available for job creation. That means more jobs, more productivity, and higher wages for all American workers.
And all that is even granting the shaky proposition that extending Bush-era tax cuts should not be considered a tax cut. In short, it's obviously correct that Ryan proposes to cut taxes for the rich.