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A Project of The Annenberg Public Policy Center

Does House Budget Plan Cut Taxes or Not?

Rep. Paul Ryan says the House Republican budget plan does not cut taxes. White House senior adviser David Plouffe says not only does it cut taxes, but it “showers huge additional tax cuts on the wealthy.” Who’s right? It depends on the details of the final plan, but a nonpartisan analysis shows Ryan’s plan likely would reduce taxes for high-income taxpayers.

The does-too/does-not virtual debate between Ryan and Plouffe played out March 25 across a few of the Sunday morning talk shows.

Plouffe, ABC’s “This Week: [H]ere’s what that budget is. It fails the standard — it fails the test of balance and fairness and shared responsibility. It showers huge additional tax cuts on the wealthy.

Ryan, CBS’ “Face the Nation: [W]e’re not proposing tax cuts. We’re proposing to keep revenues where they are but to clear out all the special interest loopholes which are uniquely enjoyed by higher income earners in exchange for lower rates for everyone.

So, would Ryan’s plan cut taxes or not?

This is what we know: The House Republican plan would cut tax rates and broaden the tax base. It would create a “simplified tax” system with two rates (10 percent and 25 percent), instead of the current six rates, which range from 10 percent to 35 percent. Now, Ryan says his plan would be revenue neutral — which is why he can claim that he is not proposing tax cuts — by eliminating unidentified tax deductions and closing unspecified tax loopholes.

Regardless, an analysis by the nonpartisan Tax Policy Center suggests the plan likely would result in tax cuts for the wealthy.

Howard Gleckman, a former Business Week reporter who is now a resident fellow at the Urban Institute, reviewed TPC’s analysis of Ryan’s plan. The Tax Policy Center is a joint project of the Urban Institute and Brookings Institution. Gleckman says Ryan’s plan “would result in huge benefits for high-income people and very modest — or no — benefits for low income working households.”

Gleckman, March 23: TPC found that in 2015, relative to today’s tax system, those making $1 million or more would enjoy an average tax cut of $265,000 and see their after-tax income increase by 12.5 percent. By contrast, half of those making between $20,000 and $30,000 would get no tax cut at all.

Those TPC figures don’t make any allowance for the off-setting effect of Ryan’s yet-to-be specified changes to broaden the tax base. Ryan, who chairs the House Budget Committee, is leaving the revenue-raising details to the House Ways and Means Committee, which is the tax-writing panel.

Even so, Gleckman writes that the Ryan plan is still likely to result in tax cuts for the wealthy.

Gleckman, March 23: Cuts in those tax preferences could make a big difference in determining who wins and who loses from the tax portion of his budget. But until House Republicans describe which they’d cut, there is no way to estimate what those base-broadeners would mean.

In truth, unless Republicans raise taxes on capital gains and dividends, it is hard to imagine the highest income households getting anything other than a windfall from this budget. Other tax preferences, such as the mortgage interest deduction, are just not that valuable to them.

Even Ryan, when pressed by “Fox News Sunday” host Chris Wallace, could not say if the distribution of taxes would be the same under his plan. (Ryan and Plouffe both appeared on Fox.)

Wallace, March 25: Are you willing to say that it would not only be revenue neutral, but also distributionally neutral, which means that the wealthy aren’t going to benefit and the middle class isn’t going to suffer.

Ryan: I don’t know. There is no way to know the answer to that question. But we do believe in a progressive taxes and that’s why we have two rates: 10 percent tax rate for low and middle income earners, 25 percent tax rate for higher earners, whether it’s distributionally the same as the current code, it’s impossible to answer that question.

Expect to hear more on Ryan’s plan and who it would — or would not — benefit, especially if Mitt Romney is the Republican presidential nominee. Plouffe refers to Ryan’s plan as the “Romney-Ryan plan,” because Romney says he fully supports the Ryan budget.

— Eugene Kiely