Paul Ryan's Regressive Tax Cuts

Moneybox
A blog about business and economics.
March 15 2013 11:12 AM

Distributional Consequences of Ryan Tax Plan

Paul Ryan
Paul Ryan

Photo by Nicholas Kamm/AFP/Getty Images

The Tax Policy Center is out with its preliminary analysis of the tax side of Paul Ryan's budget, and they've determined that the rate cuts he favors will create a $5.7 trillion hole over the next 10 years to be closed with the elimination of unspecified tax deductions.

How does it look in distributive terms? Ugly:

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Of course since rich people start out with higher after-tax incomes than the middle class, that larger percentage increase in after-tax incomes expands to an enormous gap in actual dollars. The poorest 20 percent of American households would receive, on average, a $60 tax cut. The middle 20 percent would get $1,961. The top 1 percent would get $227,420. The results are so skewed that I couldn't come up with a legible way of presenting them visually, but if you go up to the top 0.1 percent they get $1.2 million on average.

Now presumably in the real world, everyone's after-tax income goes up by less than that because of the loophole closing. That means the super-rich won't really get a $1.2 million tax cut. But then again, the middle quintile won't get its $1,961 tax cut either. In fact, I think it would be impossible to structure this without raising taxes on a significant number of middle-class taxpayers.

It's difficult to say, however, without the details. And that's what's pernicious about this half-specific approach to tax policy. It's fine that Ryan doesn't want to usurp the role of the Ways & Means Committee, but by naming specific tax rates without naming specific tax deductions he's created a very confusing situation in which it's difficult to say what the consequences of this approach would really be.

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

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