A roster of luminaries from the federal government of the 1990s on Tuesday released a long-term spending-cut and tax reform plan designed to tackle the nation’s debt crisis while reducing after-tax income inequality.
The liberal-leaning Center for American Progress, following a year of work by a team of big-name authors, released “Reforming Our Tax System, Reducing Our Deficit,” outlining “progressive, revenue-enhancing, efficient, simplifying, and pragmatic tax reform” coupled with “pragmatic spending cuts that do not undermine the middle class, the poor, or seniors.”
The spending side of the plan includes counting the $1.5 trillion in reductions enacted in the past year, some new defense cuts, adjustments in Medicare to “bend the cost curve” without hitting beneficiaries, and other proposals the center offered previously. Among those are cuts to federal retirement benefits, which, as noted by John Podesta, the center’s founder and chair who was President Clinton’s chief of staff, are part of the current talks between the White House and Congress on avoiding the fiscal cliff.
The report did not go into much detail on these reductions.
The $4.1 trillion plan would bring the nation’s debt-to-gross domestic product ratio below 72 percent by 2022, according to center president Neera Tanden. It would do so in part by restoring the top marginal tax rate to its Clinton administration rate of 39.6 percent, raising the capital gains rate to 28 percent, making deductions more uniform in their benefits to different income groups, and simplifying tax filing so that most taxpayers would fall in the 15 percent bracket and would not need to itemize.
“We should recognize our revenue problem,” the report said. “Repeated tax cuts played an outsized role in creating the budget deficits of the last decade and they have hurt our country.” Taxes “pay for the foundational public investments that are critical to a modern prosperous society, such as infrastructure, education, and basic scientific research. They pay for services that only the government can effectively perform, such as national defense and ensuring clean food, safe consumer products, and clean water. Taxes make it possible for us to meet our societal obligation to care for our veterans, our aged, and our impoverished. And taxation allows us to overcome national challenges and achieve extraordinary feats. Apollo 11, the Hoover Dam, and the Internet were all financed with tax revenues.”
The plan, a consensus of former White House and Treasury and Commerce department executives, would rely on such Democratic perennials as raising current taxes on cigarettes, alcohol and gambling; raising tax rates on so-called carried interest; and phasing in a cap on the mortgage interest deduction, among other proposals.
“Let’s avoid the fiscal cliff,” Podesta said in a Tuesday conference call. The negotiators “are likely to resolve it with some increase in revenues now, with instructions to Congress to complete a more comprehensive tax plan in 2013.” The CAP proposal, he said, “frames the parameters as a starting point for discussion” in the Senate Finance and House Ways and Means committees.
Former Treasury Secretary Robert Rubin, now co-chairman of the Council on Foreign Relations, said the report “is a good example of how people with a common objective but somewhat different perspectives can work together. By putting in place a plan now that addresses our fiscal outlook, I think we could contribute to the economic recovery by increasing confidence and creating room for up-front stimulus.” (The other Clinton Treasury secretary, Larry Summers, also helped with the report.)
The report reflects “difficult choices made in a sensible manner,” said Leslie Samuels, former assistant Treasury secretary for tax policy, now a senior partner with Cleary Gottlieb Steen & Hamilton LLP. “It looks at the entire tax system in pragmatic way, dealing with the alternative minimum tax, the estate and gift taxes, excise tax and the corporate tax.”
Former Deputy Treasury Secretary Roger Altman, now executive chairman of Evercore Partners, said the plan “achieves a big chunk of deficit reduction, which the U.S. as a nation can’t afford not to do now.” He noted that left unchecked, the nation’s debt would reach 90 percent of GDP, or near the “dangerous levels” seen in European countries.
Former Commerce Secretary William Daley, who served as President Obama’s chief of staff, called it a “real and complete plan that is based on experience. It’s all about getting our long-term house in order with the purpose of getting the economy going.”
Antonio Weiss, the global head of investment banking for Lazard, a financial and asset management firm, said the business community would welcome plan’s “clarity and reduction in uncertainty, and restoration in confidence.”