Senator Pat Toomey (R-PA) pounced on CNN’s Soledad O’Brien this week when she raised findings from an analysis that CBPP issued last fall of the tax plan that the Senator proposed to the congressional “Supercommittee.” Senator Toomey asserted that a finding that O’Brien cited — that his tax plan would raise taxes on people making less than $200,000 — was “factually wrong and ridiculous.”
Really? Let’s take a look:
In presenting his plan to the Supercommittee, Senator Toomey indicated it would:
It is impossible to do all of these things without raising taxes on people below $200,000. Consider:
The math is irrefutable. Senator Toomey told O’Brien that, while reducing their deductions and credits, he also would cut tax rates for people below $200,000 so that they would face no net tax increase. But that can’t be. If the tax plan is supposed to produce a net increase in revenues, and if it loses revenue from people making over $200,000, then it simply must raise revenue from people making less than $200,000.
Nor would that outcome be terribly surprising. With regard to tax expenditures, the Toomey plan shields the most lucrative tax expenditure for high-income people — the preferential tax rate on capital gains — while limiting key tax expenditures that lower- and middle-income people use, such as the child tax credit and employer-provided health insurance. Indeed, Feldstein’s own estimates show that nearly three-fifths (71 percent) of the revenue that his proposal to limit tax expenditures — the model for the Toomey plan — would produce would come from people with incomes under $200,000.
Moreover, the Joint Committee for Taxation (JCT), Congress’ official, impartial “scorekeeper” on tax legislation, examined a plan similar to Senator Toomey’s — one that would cut tax rates to about one-seventh below the Bush tax rates, setting the top rate at 30 percent (Senator Toomey’s top rate is 28 percent), fully offset the costs of cutting tax rates by reducing tax expenditures (the Toomey plan would go further and limit tax expenditures enough to produce $290 billion in net revenue increases for deficit reduction), and retain the current preferential tax rates for capital gains and dividends (as the Toomey plan would do). JCT found people making more than $200,000 would receive large tax cuts while those making less than $200,000 would, on average, face tax increases.
The only way that Senator Toomey’s plan could avoid raising taxes on people with incomes below $200,000 would be if he designed it in such a way that it lost significant revenue overall and, thus, added significantly to the deficit. Given its tax cuts for people at high income levels, it must either raise taxes on middle-income families or increase the deficit. It cannot achieve the conflicting goals that Senator Toomey claims for it.
That would become evident if Senator Toomey turned his proposal, which is still not available on paper, into a specific plan and sent it to JCT for analysis.