Fear mongering from the Congressional Budget Office?
When the CBO turned to the revenue side of the equation, it again committed both sins of omission and conflation. Corporate income tax rates are near historic lows (see related visualization on corporate tax revenue and effective corporate tax rate), yet neither of the CBO’s scenarios includes any increase in rate (one scenario does allow for the expiration of tax breaks currently scheduled to expire in the course of the next 10 years).
To be fair, the Administration and many other Democrats have jumped on the “broaden the base, lower the rates” bandwagon, so elimination of unwarranted tax breaks and a restoration of some higher level of nominal corporate tax rate is hardly a likely scenario in today’s political environment. But if a document is intended to stimulate debate about the consequences of various policy options, saying only that, in one scenario, the CBO assumed that “unspecified policy adjustments will be made to keep revenues constant as a share of GDP” doesn’t do the job.
Critically, the CBO posits either the expiration either of all of the Bush tax cuts or none of the Bush tax cuts. Allowing lower tax rates for the wealthy to expire as scheduled, but preserving all or some middle class tax breaks was not put on the table.
Now this may have been the CBO’s tacit way of expressing its expectation that the Obama Administration will be as lacking in backbone at the end of this year as it was at the end of 2010 (when it let itself be blackmailed into extending the tax cuts for the wealthy). But the result is to have readers of the report lack the information to assess what would happen under a different method of “balancing” interests: for instance, one that allowed tax cuts for the wealthy to expire entirely; that moved capital gains rates back to that provided by the Tax Reform Act of 1986 (that is, a rate closer to the 28 percent of that law than the uncharacteristically low 15 percent currently in effect); that prevented growing numbers of middle class families from having to pay the Alternative Minimum Tax; that strengthened Social Security, as discussed earlier, by making income beyond $106,000 per year subject to the payroll tax; and that retains most but not all current tax breaks for the middle class (for example, placing greater restrictions on the mortgage interest deduction).
Perhaps the CBO’s staff really believes that a few percentage points more of taxation relative to GDP would actually make wealthy people decide that it is better to sit on the beach and thus wreck the economy, but at least let’s see what a scenario weighted heavily towards revenue increases and against benefit cuts would look like.
It is certainly the CBO’s job to do so. In describing its processes, the CBO states that it “regularly shows the effects of adopting alternative policies that have been discussed by the Congress, so that the impact of those alternative policies is clear.” While the members of Congress who insist on retaining, enhancing, and paying for a safety net that defines a caring society don’t get a lot of press attention, they do exist. The CBO should be prepared to explain the budgetary and other impacts of that vision, not stack the deck with a choice of “unpalatable” versus some flavor of Bowles-Simpson.
If we had a full range of alternatives on the table, we could begin to decide which risks are worth taking, and which are not.