The key players at the heart of the fiscal drama are fond of invoking an offstage ghost—Bill Clinton.
President Obama references his economic track record when calling for top marginal tax rates to return to a Clintonian 39.6 percent—slightly less than a five percentage point increase from current levels. House Speaker John Boehner counters with a bid that originated more than a year ago from Erskine Bowles, the former Clinton chief of staff. Democrats want $1.6 trillion in new tax revenues over the next decade to lower the debt, while Republicans push for half of that through limiting and capping deductions.
Like some kind of West Wing reunion, the ex-Clintonites submitted their own budget plan on Tuesday under the auspices of the Center for American Progress. It swings even further to the left than Obama: $1.8 trillion in new taxes and $800 billion in additional net spending cuts. Combined with the $1.5 trillion in savings from last year’s Budget Control Act, they would ratchet down the projected deficits by $4.1 trillion over 10 years.
Famed Clinton-era Treasury Secretary Bob Rubin —an alum at both Goldman Sachs and Citigroup—claimed the framework would stimulate the economy.
“By putting in place a plan now that addresses our fiscal outlook, I think it can contribute to our present recovery now,” Rubin told reporters on a conference call.
But the proposal developed by some big Democratic names including John Podesta (former Clinton chief of staff), Larry Summers (another past Clinton Treasury secretary), Bill Daley (a Clinton Commerce secretary and later an Obama chief of staff), and Roger Altman (a deputy Treasury secretary), includes some dramatic recommendations.
It’s designed to create a more progressive tax code. It does this through imposing a top marginal rate of 39.6 percent on incomes above $422,000, increasing the capital gains tax rate to 28 percent from 15 percent, and turning cherished deductions for expenses such as mortgage interest into tax credits. By implementing these changes, the filing process would in theory become simpler and wealthier Americans would benefit less from tax breaks meant to benefit the middle class.
While Obama has emphasized that his tax increases would only start for families earning more than $250,000, Podesta explained that the CAP plan would cause a “tiny” bump in taxes from those with $100,000 to $250,000 in income.
The average family in that range would owe $468 more a year relative to current policy, according to estimates by the liberal think tank. Those earning more than $1 million would pay an additional $155,700 to the government.
On the expenditures side, there would be $385 billion in health care savings from removing subsidies and inefficiencies from programs such as Medicare. Another $100 billion would be trimmed from the Pentagon, along with $100 billion in nondiscretionary spending. The plan includes another $1.8 billion in savings from undefined “programmatic” costs and—in an accounting estimate—a projected $500 billion in debt servicing interest costs.
But the plan also commits another $400 billion in spending for economic stimulus—something congressional Republicans largely oppose. This would contain $100 billion in tax cuts and $300 billion for infrastructure, the hiring of teachers, and energy efficient retrofits.
