How much would that new bipartisan Senate "Gang of Six" plan to cut the deficit by $3.7 trillion over a decade raise taxes? And how about your own tax bill?
Those seem like straightforward questions and pretty important ones, considering the praise the plan has garnered from President Obama as well as outside budget hawks like billionaire Blackstone Group co-founder Peter Peterson. But the answers are muddied by politics, arcane Washington budgeting conventions and the decisions the plan leaves to a future fast track "tax reform" by Congress.
How's this for confusing? Senate Budget Committee Chairman Kent Conrad (D-N.D.), a Gang of Six member, told reporters that the plan would raise $1.2 trillion in new revenues over a decade. Yet the Gang also distributed an executive summary asserting that if the Congressional Budget Office were to score the plan, it would find it has "net tax relief of $1.5 trillion". In other words, according to this summary, it would actually cut the nation's collective tax bill.
So which is it?
The answer is that the plan will raise $1.5 trillion less than the CBO baseline projection ---a projection that includes only tax law currently on the books and not any popular expectations for what the law might be. In this CBO baseline, all the Bush tax cuts, including those for the middle class, expire at the end of 2012, when the two-year tax cut extension President Obama negotiated with Republicans last December ends. Also in this baseline, the alternative minimum tax "fix", which Congress passes every year or two to protect tens of millions of middle class Americans from the AMT, expires as scheduled at the end of 2011. As economist Leonard Burman puts it, the CBO baseline assumes "the AMT engulfs the middle class in a web of higher taxes and mind-numbing complexity".
But the CBO also has an "alternative fiscal scenario" which it says includes the continuation of certain policies "that people have grown accustomed to—because those policies are in place now or were in place until recently." That alternative includes the AMT fix and most of the Bush tax cuts, but not tax cuts for families earning more than $250,000 which Obama and many Democrats want to end. In this alternative scenario, the 2009 estate tax law, with a $3.5 million exemption and 45% rate is assumed, as opposed to the $5 million exemption and 35% rate in the 2010 Obama-Republican deal. (You can find more on scenarios in the CBO's June 2011 Long-Term Budget Outlook here.)
The alternative scenario is the one President Obama's bipartisan deficit commission used in its final report last December, which called for raising $800 billion over a decade by reforming the tax code----lowering rates but cutting or limiting a slew of credits and deductions (tax expenditures, in budget speak).
Similarly, the Gang of Six wants to use a loophole-closing, rate-lowering reform to raise $1 trillion over a decade for deficit reduction. (The Gang also called for raising $133 billion extra for highway spending over 10 years, without touching the gas tax. So it seems that money too might come from the income tax overhaul.) While the Gang left the heavy lifting of tax reform to the Senate Finance Committee, it suggested that the top individual and corporate tax rates be reduced to 23% to 29%, down from the current 35%. (Conrad's estimate that the plan would raise $1.2 trillion is apparently based on the CBO alternative, which it calls a "plausible" baseline.)