$65 billion "would be added to the deficit if we keep the cuts for people on the highest incomes."
Mark Warner on Thursday, November 11th, 2010 in n Op/Ed in The Financial Times
Warner says the deficit would grow by $65 billion "if we keep the cuts for people on the highest incomes.”
Sen. Mark Warner is pitching a plan that would allow some Bush-era tax cuts to expire as scheduled and apply the additional tax revenue toward business tax cuts and incentives to spur the economy.
Laying out his plan in an Op-Ed in the Financial Times, Warner notes that a Republican-Democrat compromise is being considered by the Obama administration that would temporarily extend all the tax breaks for two more years.
"However, this latter approach has problems beyond the $65bn that would be added to the deficit if we keep the cuts for people on the highest incomes," Warner writes. "In Washington such ‘temporary’ benefits also have a strange way of becoming permanent."
Since Warner’s own plan hinges on reapplying the $65 billion in additional tax revenue that would come from allowing the tax breaks for the wealthy to expire, we thought it prudent to check the figure.
Asked for the source, Warner’s communication director Kevin Hall pointed to estimates by the U.S. Treasury.
Those projections show that allowing the cuts to expire along with adjustments to the capital gains and dividends would amount to $74.4 billion over two years.
Here’s why we mention that factor: If the Bush tax cuts are allowed to expire as scheduled, the top tax rate on long-term capital gains would rise from 15 percent to 20 percent. Dividends, which are currently taxed at 15 percent, would be taxed at the same rates as ordinary income with a top rate of 39.9 percent.
But if we look exclusively at allowing the Bush cuts to expire, it’s $62.5 billion for the two years.
Hall said Warner excludes the capital gains and dividends change because they might not be enacted, "and capital gains isn’t really what people talk about when they say ‘income taxes.’"
Gerald Prante, senior economist with the nonpartisan Tax Foundation, disagreed on that point. He also suggested looking at more recent figures from the Office of Management and Budget, noting that the Treasury numbers are based upon estimates that have since been revised.
The OMB figures show that allowing the cuts for the wealthy to expire would generate more than $66 billion in tax revenue over two years. But that’s including the adjustment to the capital gains.
Without it, the two-year total is closer to $57 billion.
Its worth noting, however, that the numbers from both sources look at the revenue to be gained from repealing the tax cuts permanently as opposed to eliminating them after a two-year extension.
"If there was only a two-year extension, the cost may not be $66 billion as [the] Joint Committee on Taxation/Treasury would assume tax planning that could change the costs, moving income between years," noted Prante. "But overall, Warner's claim is fine...the $65 billion figure is not an exaggeration."
So, if we use the Treasury’s numbers, and look exclusively at the tax revenue raised by the two years worth of repealed cuts for the wealthy, then Warner is very close.
Using the more recent OMB figures, he’d be nearer by including the capital gains adjustment, but is still in the neighborhood.
Accepting that pinpointing a number using evolving projections is not an exact science, we find Warner’s claim to be Mostly True.
Published: Sunday, November 14th, 2010 at 10:00 a.m.
Financial Times, Obama’s alternative to repeal of Bush tax cuts, "Obama’s alternative to repeal of Bush tax cuts", Nov. 11, 2010.
Department of the Treasury, General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals, February 2010.
Office of Management and Budget, Mid-Session Review, July 23, 2010.
Congressional Budget Office, The Budget and Economic Outlook: An Update, Aug. 18, 2010.
Joint Committee on Taxation, "Present Law And The President’s Fiscal Year 2011 Budget Proposals Related To Selected Individual Income Tax Provisions Scheduled To Expire Under The Sunset Provisions Of The Economic Growth And Tax Relief Reconciliation Act Of 2001" (report), July 12, 2010
Tax Policy Center, 2011 Budget Tax Proposals, accessed Nov. 5, 2010.
Email interview with Gerald Prante, senior economist, The Tax Foundation, Nov. 12, 2010.
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