More on the Chairmen's Mark...

Two charts tell the story of the proposed reduction of the top rate of taxation to 23%, and how this reduction has been labeled a tax increase.

This shows the proposed tax rates under a number of different scenarios. The one that they suggest is the "Eliminate all Tax Expenditures," including the mortgage tax credit, the health care tax credit, the earned income tax credit, the child tax credit, and other political favorites. Now some of these are policy favorites as well, especially the child tax credit and the earned income tax credit, and so the chairmen propose first getting rid of them all (making this the Zero Expenditure Plan), lowering the tax rates accordingly, and then raising the rates according to which of the tax credits are brought back.

So the top bracket gets a decrease in their tax rates under the zero expenditure scenario of 35%, that is from 36% of income to 23% of income. (I'm going to assume that the Democrats cave, of course, and all the Bush tax cuts are extended.) The lower top rate gets a 30% reduction, from 33%-23%. The current bottom rate, introduced by the Bush tax cuts, is 10%, and this decreases to 8%, a 20% reduction. The next lowest is at 15%, and decreases to 8%, a reduction of 46.7%. The lower middle, currently at 25%, gets a 44% reduction to 14%, while the upper middle gets a decrease of 50%, from 28% of income to 14% of income.

Of course this still benefits the top bracket the most, as their 36% decrease will--in actual dollar terms--dwarf the decrease of the middle's 50% reduction. It is not exactly progressive, although in percentage terms it benefits the middle more than the top (less so, however, if the Dems don't actually extend the Bush tax cuts for the above $250,000 crowd). And the slim reduction for the bottom bracket? We call that "broadening the base," on the grounds that the $0-$8,375 crowd currently isn't contributing their fair share from the less than nothing they have left over after scraping by another goddamned year.

But when we assume that the major tax expenditures are not going to be eliminated (the most likely scenario in my view), then this changes somewhat. The bottom bracket gets a tax increase, from 10% to 13% (30% increase), the upper bottom gets a 13% reduction from 15% to 13%, the bottom middle gets a 16% reduction, from 25% to 31%. The upper middle gets a decrease of 25% (from 28 to 21% of income). The lower top gets a 15% decrease and the upper rate gets a 20% decrease.

So to be clear, under the most likely scenario

• $0-$8,375:  tax increase of 30%
• $8,375-$34,000: tax decrease of 13%
• $34,000-$82,400: tax decrease of 16%
• $82,400-$171,850: tax decrease of 25%
• $171,850-$373,650: tax decrease of 15%
• $373,650-above: tax decrease of 20%

And under the situation they propose:

• $0-$8,375:  tax decrease of 20%
• $8,375-$34,000: tax decrease of 46.7%
• $34,000-$82,400: tax decrease of 44%
• $82,400-$171,850: tax decrease of 50%
• $171,850-$373,650: tax decrease of 30%
• $373,650-above: tax decrease of 35%

Not the most regressive it could be, but not exactly making the tax code more progressive. Remember, we want to "broaden the base" not "soak the rich."

The next chart is the distribution of benefits from tax expenditures. It is effect of the credits on the after-tax income, by income quintile.

The benefits of the tax expenditures go disproportionately to the wealthy. Surprised? So eliminating some of these might mean a progressivization of the income tax, although it depends on which are eliminated.

The devil will be in the details. On the whole it seems likely to make the tax code less progressive (which is troubling, given that federal income taxes are pretty much the only progressive element to the American tax system). But that overall it will likely be a reshuffling and simplification of the existing rates.