Today, the Congressional Progressive Caucus (CPC), a liberal group of Democrats in the House, released its own FY 2012 budget, "The People's Budget," which offers "a clear contrast" to the budget proposed by House Budget Committee Chair Paul Ryan (R-WI).
CPC's plan, coming on the same day that President Obama releases his long-term fiscal blueprint, takes a more liberal approach focused on defense cuts, and tax increases on upper-income Americans that are larger than those proposed by President Obama in his FY 2012 budget. The plan would lower the deficit by $5.6 trillion over the next ten years, achieving a surplus of $30.7 billion and debt of 64.1% of GDP in 2021, according to estimates provided by the CPC.
To reach these levels CPC proposes spending cuts of $869 billion and revenue increases of $3.9 trillion. It covers most areas of the budget including tax reform, defense, education, transportation and housing, and changes to Social Security and health care. Estimates of the plan avoid two major gimmicks by including in its baseline an extension of the AMT patch and "doc fix," two costly provisions not included in CBO's baseline, but which are routinely added by Congress. Overall, major measures in the plan include:
- Allowing all of the 2001/2003 tax cuts to expire at the end of 2012, except those on upper incomes, which are eliminated immediately, but the CPC would retain some tax credits dedicated to middle-class families and children.
- Implementing Rep. Schakowsky's Fairness in Taxation Act, which creates several new high-income tax brackets and taxes capital gains and qualified dividends as normal income for those with incomes above $1 million.
- Limiting itemized deductions to 28% (although the CPC is not clear on this, we assume that itemized deductions can only reduce up to 28% of an individual's tax liability).
- Modifying the estate tax to include a $3.5/$7 million exemption with progressive rate increases as the value of the estate rises.
- Taxing U.S. corporate foreign income as it is earned.
- Eliminating tax expenditures for oil, gas and coal companies, and reinstating Superfund taxes.
- Enacting a financial crisis responsibility tax (the same as the one proposed by President Obama) and a financial speculation tax.
- Enacting a health care public option.
- Increase the taxable maximum to 90% on employee side of earnings for the payroll tax and eliminate the taxable maximum on the employer.
- Ending emergency funding for Overseas Contingency Operations.
- Investing $1.45 trillion in job creation, education, clean energy, broadband infrastructure, housing and research and development.
- Creating a National Infrastructure Bank focusing on transportation at a cost of $213 billion.
- Increasing motor fuel taxes by 25 cents, dedicated to the Highway Trust Fund.
This plan, which does achieve significant debt and deficit reduction, is unlikely to receive bipartisan support. Whereas Ryan’s budget left revenue unscathed (and barely touched defense spending) the CPC plan goes in the opposite direction, relying heavily on tax increases. While it is a serious proposal with specific recommendations, as we said about the Ryan budget, it is time to develop a solution that can garner broad support. Only by working together across the partisan divide can policymakers achieve the Goldilocks plan that is "just right" -- an effective plan that is realistic enough to be passed by Congress and enacted by the President.