The GOP Has a “Fiscal Cliff” Math Problem
Posted in: fiscal cliff
Before even considering if the Republican fiscal cliff counter proposalis a political move or a serious negotiation offer, you first must first discern if the math works. If the basic numbers in a deficit reduction proposal don’t add up it does not constitute a real offer. And as it currently stands, the GOP has a serious problem with math.
The Republicans claim this plan will bring in $800 billion in new revenue without raising tax rates by limiting deductions, even though days earlier the White House put out an analysis showing it would be mathematically impossible to raise that much from high income earners without creating serious issues. The only way to make the Republican plan work is to also raise taxes on the middle class. According to the Gene Sperling and Jason Furman:
- Limiting the cap to those with incomes over $250,000 leaves only $800 billion in revenue. A $25,000 cap that applied to all households would raise taxes by an average of $2,400 on 17 million households with incomes below $250,000 ($200,000 for singles). Treasury estimates show that about 40 percent of the revenue from such a cap would come from these households. Thus, the amount of revenue that could be raised from taxpayers making more than $250,000 is only about $800 billion.
- The need to phase in a cap to avoid a “cliff” reduces revenues to around $650 billion. In practice, it would not be possible to impose a $25,000 cap on itemized deductions beginning at an income threshold of $250,000. Doing so would create an immense “cliff,” where someone whose income rose to $251,000 could suddenly owe thousands of dollars more in taxes. Accounting for a realistic phase-in reduces the revenue from households above $250,000 by about 20 percent, to about $650 billion.
Similarly, the GOP has a math problem regarding planned saves from Medicare and Social Security. According to Paul Krugman, adopting all the specific policy changes they have put forward would only generate around $300 billion in savings while imposing serious hardship on regular Americans. That is significantly less than the $800 billion Republicans claim they want to saves from Medicare, Medicaid and Social Security. Given how strongly the Republicans have rejected many other proposals to reduce Medicare spending put forward by President Obama, such as the independent payment advisory board, they need to explain where the rest of that money will come from.
Until the Republicans figure out a way to make the math work their offer cannot be considered a serous plan, because it is not even a “plan.” A plan requires specific ideas that at least stand a chance of achieving the stated goal.
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