A Look at Two Sharply Different Fiscal Proposals

Over the past few days, both the White House and Republicans in Congress released proposals for what to do about the tax and spending changes that are set to hit next year. In all likelihood, these are going to be the starting positions for the negotiations which should avert an austerity crisis next year.

If Congress doesn’t pass anything, over the course of 2013 tax rates in every bracket will go up, major spending cuts will be implemented and important economic relief policies will end. So these negotiations matter a lot. These proposals aren’t legislation yet, just outlines of what legislation could look like.

President Obama’s proposal came first, and at first glance it looks pretty good—it reflects the principles Obama campaigned and won on:

  • Most tax rates would stay the same, while income over $250,000 would be taxed at the rate it was in the 1990s. That means no tax changes for 98 percent of people.
  • The payroll tax holiday would be extended.
  • Extended unemployment benefits would be renewed—a very big deal for millions of people.
  • There are a few really important economic relief programs included—namely, $50 billion that would probably go to infrastructure spending as well as further investment in mortgage refinancing. This is really important, because the primary problems we face right now are jobs and consumer demand.
  • Critically, it provides a way for us to avoid an economy-threatening fight over the debt ceiling like we had last year.

In short, the President’s plan has a lot of good ideas—it ends the Bush tax cuts for the top 2 percent (as the public overwhelmingly wants), it seems to avoid benefit cuts to social safety net programs, and it puts the focus where it needs to be—on shoring up the economy and creating jobs in the near term, not implementing new austerity measures.

Compare it to the (vague) list of principles and ideas proposed by Speaker John Boehner in a letter sent to Obama on Monday.

  • There’s some promise of new revenue—along with the insistence that tax rates for the rich will stay the same. All the revenue would come from unspecified changes to deductions, which is the same sort of promise that Mitt Romney made about his tax plans. Greg Sargent’s description of this promise as “magical thinking” seems apt.
  • There’s also hundreds of billions in changes to Social Security and Medicare—again, in totally unspecified ways. One suggestion being floated is that the savings would come from increasing the Medicare eligibility age, which is a terrible idea.

To be blunt, this proposal is about cutting benefits for retirees in order to protect low tax rates for millionaires. As Robert Greenstein of the Center on Budget and Policy Priorities puts it:

People with low incomes or serious disabilities, and elderly people of modest means, would face substantial cuts — but people at the top would get to keep a significant share of their munificent tax cuts.

Governing is about priorities. Obama’s and Boehner’s proposals pretty clearly indicate what they’re willing to give up and what they’re trying to protect as we approach the end of the year.

We’ll be keeping a close eye on fiscal negotiations, and our members are ready to get engaged and tell their representatives to reach a good deal.