Congressional Progressive Caucus Budget

Moneybox
A blog about business and economics.
March 14 2013 9:23 AM

Congressional Progressive Caucus Shows You What a Liberal Budget Looks Like

CPC
CPC members unveil their sequestration replacement plan.

Official photo

There's an unfortunate tendency in the media to define the poles of the debate as being between the median member of the high-discipline Republican caucus and the right-most members of the low-discipline Democratic caucus. But that's an observation about the structure of internal caucus dynamics, not the real ideological landscape. So if you want a taste of what a liberal alternative to conservative budgeting really looks like, I'd skip past the Senate Budget Committee Democrats' plan and take a gander at the "Back to Work" (PDF) budget from the progressive caucus in the House.

This one really takes a hammer to the budget deficit.

Advertisement

It restores Clinton-era marginal income tax rates starting at the $250,000 threshold. It establishes new income tax brackets—45 percent at $1 million, 46 percent at $10 million, 47 percent at $20 million, 48 percent at $100 million, and 49 percent at $1 billion. Capital gains and dividends will be taxed as ordinary income. The deductibility of all itemized deductions will be capped at the 28 percent rate. The estate tax will have a $2.5 million exemption and then a series of progressive marginal rates from 55 to 65 percent. The mortgage-interest tax deduction for second homes is eliminated. There's a financial transactions tax. A couple of corporate income tax deductions are eliminated. There's a kind of too-big-too-fail tax on banks more than $50 billion in assets. There's a $25 per-ton carbon tax.

There are also a lot of spending-side measures here. Medicare will reduce its payment rates to pharmaceutical companies down to the Medicaid level. A strong public option will bring down spending on Affordable Care Act exchange subsidies. The use of bundled payment procedures is going to be accelerated as will the Affordable Care Act state waiver process. Base Pentagon spending is reduced to 2006 levels, and farm subsidies for commodity crops are reduced.

This is all counterbalanced by some new fiscal stimulus spending in the short-term, and by a medium-term vision that entails a level of nonmilitary discretionary spending that's close to the historical level rather than far below it as envisioned by current policies.

The upshot is that by 2023 spending will be about 23 percent of GDP with revenue coming in at 21.4 percent of GDP, leaving for a small and prudent budget deficit of 1.2 percent of GDP. In terms of timing, the fiscal consolidation happens pretty rapidly here. You run large deficits for the next few years, but by 2015 you're already in arguably sustainable territory with a 3.3 percent of GDP deficit, and by 2016 it's all the way down to 1.7 percent.

Obviously this isn't going to be enacted, and it's, in that sense, not a "serious" budget. But people should take it seriously. The CPC envisions America becoming a country that has higher taxes, commits a much smaller share of national output to its military, and compensates its health care providers less generously. That's not everyone's cup of tea, but it's not a wild and crazy dream. It means America would look more like the United Kingdom. Most of all it shows that the passion for reducing elgibility for Social Security and Medicare isn't driven by the laws of mathematics. It's driven by a desire to protect the military budget, keep taxes low, and keep provider payment rates high. Those are all reasonable things to want to do and you can see why people would want to do them, but you can also see why people don't want to be forced into a zero-sum choice between welfare state programs for the elderly and education and infrastructure programs for the future.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.