According to the Congressional Budget Office (CBO) report released on Tuesday, the overall corporate tax rate (corporate receipts as a percentage of domestic economic profits) in 2011 dipped to 12.1 percent, an all-time low over the 40 years for which CBO has tracked this data, and less than half the historic average of 25.6 percent. As the Wall Street Journals notes, this is even as corporate profits are on the rise.

The CBO notes that the “unusually low levels” of corporate taxes were not only driven by the recession, but also by tax breaks, such as those allowing for special deductions for depreciation in the value of equipment. This reinforces the critical point that Citizens for Tax Justice has been making that although the US has one of the highest statutory corporate tax rates, a wide variety of tax breaks cause the US to actually have the second lowest effective corporate tax rate in the developed world.

Looking forward, the CBO projects that the corporate tax rate will rebound substantially over the next few years and return to near its average historic rate. Unfortunately, this projected rebound may not come to fruition as it assumes that lawmakers will actually allow the expiration of corporate tax breaks. Unfortunately, extension of unnecessary corporate tax breaks, such as the allowance of 100 percent bonus depreciation, is one of the few areas where the Republican leadership and the Obama Administration agree.

Although Congress should be more proactive in raising corporate taxes, the CBO report reveals yet another area where Congress could improve the situation by doing nothing — and allowing tax cuts to expire. Of course, that would require lawmakers to overcome the billions spent by corporations to protect these tax breaks. 

Citizens for Tax Justice has calculated that President Obama’s “Buffett Rule” would, if in effect this year, raise $50 billion in a single year and affect only the richest 0.08 percent of taxpayers — that’s just eight percent of the richest one percent of taxpayers.

During his State of the Union address, President Obama proposed that Congress enact his Buffett Rule, inspired by billionaire Warren Buffett’s complaint that he has a lower effective tax rate than his secretary.

CTJ has long argued that the most straightforward way to fix this problem is to end the special low tax rate for capital gains and stock dividends.

A document released from the White House on Wednesday suggests the President would take a different approach. It explains that

the President is now specifically calling for measures to ensure everyone making over a million dollars a year pays a minimum effective tax rate of at least 30%. The Administration will work to ensure that this rule is implemented in a way that is equitable, including not disadvantaging individuals who make large charitable contributions.

The last sentence apparently means that charitable deductions for millionaires would not be affected.

To calculate the $50 billion figure, we assumed that there would be a minimum tax that applies to adjusted gross income (AGI) minus charitable deductions. (We’ll call this modified AGI.)

We assumed that a taxpayer with modified AGI greater than $1 million would face a minimum tax of 30 percent of modified AGI. The taxpayer would pay whichever is greater, their personal income tax under the existing rules or this minimum tax.

Revenue Impact Would Depend on Details

Of course, taxes always have to be a little more complicated than that. We had to assume that this minimum tax is phased in over a certain income range rather than allow it to kick in fully for everyone with exactly $1 million or more in modified AGI. Otherwise, a person with modified AGI of $999,999 might have an effective rate of 15 percent, and if they make $2 more their effective tax rate will shoot up to 30 percent. Congress generally avoids enacting any tax rules that have this sort of “cliff” effect.

So we assumed that the minimum tax would be phased in for taxpayers with income between $1 million and $2 million. That means that only half of the minimum tax applies if you make $1.5 million, and the entire minimum tax applies if you make $2 million or more. This means that the Buffett Rule could raise less revenue or more revenue if Congress chose different rules to phase it in.

CTJ Report Explains Need for Buffett Rule

A report from Citizens for Tax Justice explains how multi-millionaires like Romney and Buffett who live on investment income can pay a lower effective tax rate than working class people.

As the report explains, there are two reasons for this. First, the personal income tax has lower rates for two key types of investment income, capital gains and stock dividends. Second, investment income is exempt from payroll taxes (which will change to a small degree when the health care reform law takes effect).

The report compares two groups of taxpayers, those with income in the $60,000 to $65,000 range (around what Buffett’s famous secretary makes), and those with income exceeding $10 million.

For the first group, about 90 percent have very little investment income (less than a tenth of their income is from investments) and consequently have an average effective tax rate of 21.3 percent. For the second group (the Buffett and Romney group) about a third get the majority of their income from investments and consequently have an average effective tax rate of 15.2 percent. This is the problem that the Buffett Rule would solve.

Photo of Warren Buffett via Track Record Creative Commons Attribution License 2.0

During his State of the Union address, President Obama said that "no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas." We couldn't agree more. However, a CTJ report explains that his proposed solutions fail to raise revenue, retain and expand the loopholes that allow corporations to avoid taxes, and mark a further retreat from earlier, stronger proposals.

Read the report.

It would require a full-time staff person to respond to all the inaccuracies we regularly see in Washington Post’s “The Fact Checker” column by Glenn Kessler, but an episode from this week really stands out.

Kessler attempts to pick at a segment of President Obama’s speech on Tuesday in Kansas, during which he said,

“I mean, understand, it's not as if we haven't tried this theory. Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history. And what did they get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country…”

Kessler admits that “it is correct that most of the benefits of the tax cuts flowed to the wealthy” but then writes that Obama “should not suggest that the Bush tax cuts were only aimed at the wealthy, since that is not correct.”

In truth, the Bush tax cuts were “aimed at the wealthy,” and a few bits and scraps were dropped to low- and middle-income people to distract inattentive people like Glenn Kessler from this fact. We estimated that by 2010, when the Bush tax cuts were fully phased in, about 52 percent of the benefits went to the richest five percent of taxpayers and just under 75 percent of the benefits went to the richest fifth of taxpayers. Less than 13 percent of the benefits went to the bottom three fifths of taxpayers. Can anyone seriously doubt that the Bush tax cuts were “aimed at the wealthy”?

It’s true that they are slightly less aimed at the wealthy today because the part of the Bush tax cuts that repealed the estate tax was partially extended, rather than fully extended, in the December 2010 deal that extended all the tax cuts for two years. We projected the distribution of the tax cuts in the event that they’re extended again in 2013 (including the estate tax cut currently in place) and the figures are not much different from our 2010 figure.

Kessler also complains that, “The Bush tax cuts have been roundly criticized for being inefficient and poorly designed, but it is a stretch for Obama to blame slow job growth on the tax cuts. There are many factors that affect job growth…”

This actually seems like a misinterpretation of what President Obama said. The President seems to be making the point that the sole Republican response to economic downturns is to cut taxes, particularly tax cuts for the wealthy investor class, and this doesn’t get the job done. Research backs this up. Economic growth was lower after these types of tax cuts were enacted in the Reagan and George W. Bush years than after the tax hikes enacted during the Clinton years.

This is not to say that President Obama or Democratic leaders have done a stellar job on economic policy. Kessler rightly points out that President Obama’s tax plan, which was filibustered by the Republican minority in the Senate last year, would have extended most of the Bush tax cuts even while allowing those going exclusively to the very rich to expire. Still, this doesn’t change the fact that the Bush tax cuts were “aimed at the wealthy” and failed to help our economy in any of the ways that their proponents promised they would.

Some commentators have suggested that, because people with incomes exceeding $1 million, on average, pay higher effective tax rates than middle-income people, the problem targeted by President Obama’s “Buffett Rule” does not exist. As demonstrated in a new report from CTJ, the problem is not the effective tax rates of millionaires across the board but a particular class of millionaires whose income is mostly from investments. Investment income is taxed less than other types of income, allowing millionaire investors to pay a smaller percentage of their income in federal taxes than do many working-class people.

The report demonstrates that this problem is not isolated to rare cases. In fact, almost one third of taxpayers with income exceeding $10 million fall into this category (of taxpayers who rely on investment income for over half of their total income). Over 90 percent of taxpayers making between $60,000 and $65,000 (which includes Mr. Buffett’s famous secretary) rely on investment income for less than a tenth of their income — and pay a higher federal tax rate as a result.

The report also explains what Congress can do to implement the Buffett Rule and solve this problem. The first step, perhaps surprisingly, is to prevent repeal of health care reform, which includes a change in the Medicare tax that will take a limited first step in addressing this unfairness. Additional reforms are needed, which may include eliminating tax preferences for investment income or a surcharge on income exceeding $1 million as recently proposed by Senate Democrats.

Photo of Warren Buffett and Barack Obama via The White House Creative Commons Attribution License 2.0

Senator Chuck Schumer of New York today said he is hesitant to support President Obama's tax proposals because, “There are people making 250, 300 [thousand dollars] in many of our states who are not rich.”

Actually, Citizens for Tax Justice calculated that married couples with income between $250,000 and $300,000 would get to keep 99 percent of their Bush tax cuts, on average, under the tax plan promoted by President Obama last year.

That plan, which the President continues to tout, would extend the Bush income tax cuts for the first $250,000 of income a married couple receives, or the first $200,000 of income an unmarried taxpayer receives.

This means that a married couple making $250,100 would pay higher taxes on just one-hundred dollars of income at most. President Obama's plan would continue the tax cuts for income even beyond $250,000/$200,000 for many taxpayers once deductions and other breaks are factored in.

As a result, CTJ found that three quarters of all couples in the $250,000 to $300,000 income range would continue to enjoy all of their Bush income tax cuts if President Obama’s plan was in effect in 2011.

Another report from CTJ explains that 84 percent of the revenue savings under the President’s tax plan would come from taxpayers with incomes exceeding $1 million. The report also explains that married couples with income above $250,000 and unmarried taxpayers with income above $200,000 are the richest 2.6 percent of Americans. Even in Senator Schumer’s state of New York, only 3.5 percent of taxpayers have incomes exceeding the $250,000/$200,000 threshold. If they can’t afford to pay higher taxes, who can?

Some of the taxpayers Senator Schumer is worried about would actually pay less under President Obama’s plan. For example, a childless married couple making $250,000 in wages and taking the standard deduction in 2011 would pay $935 less in income taxes if President Obama's plan was in effect.

See CTJ's online tax calculator which determines how much a taxpayer would pay under the different tax proposals that were debated last year.

President Obama’s tax plan would allow the tax rates for the top two income tax brackets to revert to what they were at the end of the Clinton years. The President’s plan would also adjust the income tax brackets so that a married couple with income below $250,000 (or an unmarried taxpayer with income below $200,000) cannot possibly be affected by the top two income tax rates.

This adjustment in the tax brackets would result in a tax cut for some taxpayers, including the $935 tax cut for the married couple in the example above.

Here’s the technical explanation. There are six income tax brackets. The President’s plan pushes up the level of income you must have before you’re affected by the fifth bracket. That would mean that a portion of income that is currently taxed in the fifth income tax bracket would be taxed instead in the fourth income tax bracket, which has a lower tax rate. (Interested wonks can go to page 128 of the President’s budget blueprint that explains this arcane adjustment.)

And just in case anyone is concerned that the taxpayers described by Senator Schumer are small business people who will lay off all their employees in response to even the slightest possibility of higher tax bills, see CTJ’s report, The Bush Tax Cuts and Small Business.

Obama’s Plan a Massive Tax CUT Despite GOP Claims of “Largest Tax Hike in Modern History”

While House Republican Leader Eric Cantor’s staff and others have called President Obama’s jobs and deficit plan the “largest tax hike in modern history,” the unfortunate truth is that it actually cuts taxes overall and increases the deficit.

There is much to like about the plan, as explained below. Citizens for Tax Justice applauds President Obama’s vow yesterday to, in his words, “veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share.”

Unfortunately, however, President Obama’s proposals would ultimately reduce taxes far more than raise them, compared to current law.

The tables in the back of the President’s 80-page plan quietly remind us that the total cost of making permanent the Bush tax cuts would be $3.867 trillion over the next ten years, but the President says he will “raise revenue” by making permanent “only” $3.001 trillion of these tax cuts. We certainly applaud the President for refusing to extend the $866 billion of these tax cuts that would go exclusively to those with adjusted gross incomes in excess of $250,000, but it’s difficult to call this deficit reduction.

The President’s claims that he is raising revenue are based on the common, but misleading, practice of comparing a given proposal to an alternative “baseline” that assumes Congress has already increased the deficit enormously by making permanent the Bush tax cuts. By this logic, we do not see what stops the President from comparing his plan to a baseline that assumes Congress repealed the federal income tax, in which case his plan would “raise revenue” even more successfully.

Setting aside the $866 billion that the President proposes to “raise” by not extending that part of the Bush tax cuts, the net effect of the other tax provisions in the plan (excluding the parts used to help pay for his proposed new jobs provisions) is to raise only $259 billion over the next decade. That means that, overall, the President is proposing more than $2.7 trillion in deficit-increasing tax cuts through fiscal 2021!

The cost of these tax cuts is even greater when accounting for the additional interest payments on the national debt that will result.

Revenue could be raised by closing corporate tax loopholes, but unfortunately the President’s plan calls for a reform of the corporate income tax that is “deficit-neutral.” We believe that most, if not all, of the revenue-savings resulting from closing corporate tax loopholes should go towards deficit-reduction or job creation and public investments, rather than paying for more breaks for corporations. ( See one-page fact sheet on why corporate tax reform can be “revenue-positive.”)

There are some good ideas in the President’s tax proposals that would raise revenue compared to current law and that would ask those whose incomes have grown the most in recent years to pay something closer to their fair share. This includes his proposal to limit deductions and exclusions for the wealthy, which we estimate would affect only 2.3 percent of taxpayers. ( See related report.) Certainly Congress should pursue these types of tax provisions and loophole-closing measures.

But ultimately, our nation is going to need significantly increased revenues to pay for essential public programs and services. Starting off with a gigantic tax cut that makes 80 percent of the Bush tax cuts permanent, as Obama proposes, only digs our deficit hole deeper — and makes big reductions in Social Security and Medicare even more likely.

Estimates provided by the White House show that the payroll tax cuts proposed last night by President Obama would cost $240 billion next year, just shy of the $245 billion cost of the Bush income tax cuts during the same year as estimated by Citizens for Tax Justice.

Republican lawmakers were the original proponents of a payroll tax holiday. But lately many of them have spoken out against it or are reluctant to endorse it because the President supports it. Apparently cost is not the reason for their objection, given their support of the Bush tax cuts.

The payroll tax cuts, which would go into effect in 2012 and which are the largest parts of the jobs plan announced by the President last night, have several components. The payroll tax cuts for workers would cost $175 billion, while the payroll tax cuts for employers would cost $65 billion, for a total of $240 billion.

Economists generally find that the most effective measures to mitigate a recession include programs that directly create jobs (such as Obama’s proposals to hire or retain school teachers and fix schools). Also at the top of the list are direct spending programs by the government on things like unemployment benefits (also included in Obama’s plan), since they go to the very people who are most likely to immediately spend any money or benefits they receive.

But some lawmakers oppose any and all new government spending, creating an obvious political constraint that the President has tried to navigate by proposing payroll tax cuts and other tax breaks that make up over half of the $447 billion cost of his jobs plan.

Payroll Tax Cuts for Workers: $175 Billion

As part of the tax compromise enacted at the end of last year, a one-year payroll tax cut is in effect for 2011, reducing the 6.2 percent Social Security payroll tax paid directly by workers to 4.2 percent. President Obama proposes to extend this break into 2012 and expand it by further reducing the tax paid by workers to 3.1 percent.

As we have explained before, cutting payroll taxes for workers is neither the best nor the worst possible tax measure. A tax credit that is more targeted to low- and middle-income people, like the Making Work Pay Credit, would be more effective because it would target money more towards people who are likely to spend it immediately and thereby give an immediate boost to the economy.

On the other hand, a payroll tax cut for workers is dramatically more targeted to low- and middle-income people than the other types of tax cuts that are usually debated (like the Bush tax cuts).

Payroll Tax Cuts for Employers: $65 Billion

The President’s plan would also reduce the Social Security payroll tax paid by employers to 3.1 percent for the first $5 million in wages paid in 2012. This break would go to all employers. The plan would also eliminate the entire 6.2 percent payroll tax paid by employers for any increase in a firm’s payroll up to $50 million.

Giving all companies a break for the first $5 million in wages is not likely to be effective because it gives employers a tax break regardless of whether or not they increase hiring. Economists have pointed out that many companies are stockpiling cash that they already could use to hire more workers, and a recent survey of business owners reveals that labor costs are nowhere near their main concern. In other words, only increased demand for goods and services can really prompt businesses to hire more workers. 

Some economists do believe that the payroll tax cut for businesses that expand their payroll will be more effective. But there are several reasons to be skeptical about the number of jobs that will be created as a result of this measure. First, most of this tax break will go to companies that would have expanded their payrolls anyway. Second, the payroll expansion in many cases will not mean new hires but could simply take the form of pay raises for existing employees. (This problem would be limited to a degree because the Social Security payroll tax does not apply to wages in excess of $106,800).

What businesses really need are customers. A payroll tax cut or a more targeted tax credit could help somewhat to produce more customers by putting cash in the hands of people who will spend it. But the other parts of the President’s plan, like transportation projects, extending unemployment insurance, modernizing schools, and rehiring teachers will almost certainly provide far more bang for the buck.

President Barack Obama nominated Alan Krueger to chair the White House Council of Economic Advisors on Monday and he will likely be easily confirmed. Although as a labor economist Krueger has earned many accolades for his robust work, including a seminal article defending the minimum wage, his record on tax policy is a little more mixed.

For example, in recent months Krueger voiced support for a jobs tax credit that would give companies $5,000 for every additional employee they hire. As Citizens for Tax Justice explained when President Obama proposed a similar plan, such tax credits are a poor way to encourage job creation because they inevitably go to companies who would have hired additional employees even without the credits. In fact, those companies that are struggling the most, those shrinking or unable to expand because of weak consumer demand, would receive no help from the credit.

The most controversial position Krueger has taken on tax policy was in a 2009 guest blog post arguing that a national consumption tax (specifically a 5% rate that would raise $500 billion) should be considered as one solution to the long run budget deficit. Many conservatives exaggerated the seriousness of this blog post, failing to mention Krueger’s caveat that this was “only as a suggestion for serious discussion,” and that he was “not sure it is the best way to go.”

In any case, a broad-based national consumption tax is the wrong policy because it would inevitably be severely regressive.

To be sure, Krueger has frequently stood up for good progressive tax policy. For instance, he has laid out the strong case for eliminating billions in tax subsides for oil and gas companies, opposed the ridiculous tax subsidies cities offer to sports teams and is a long time critic of the regressive Bush tax cuts.

As House lawmakers signal their intention to move forward with tax reform this fall, let’s hope we see Krueger in his new position focus on measures that will make our tax system more progressive and better for the overall economy.

Photo via Center for American Progress Creative Commons Attribution License 2.0

Lawmakers have made one important decision this week as the debt ceiling negotiations come down to the wire: the wealthy should not have to sacrifice even a dime of their tax cuts or loopholes to reduce the deficit.

Both Democratic Majority Leader Harry Reid and Republican Speaker of the House John Boehner have proposed plans to cut hundreds of billions in spending on government programs (from food safety to college tuition assistance) in order to raise the debt ceiling, without requiring any revenue be generated through ending tax loopholes or tax cuts for the rich.

Boehner’s plan requires an immediate $1.1 trillion dollars in spending cuts over the next 10 years in order to raise the debt ceiling this year, and would also require that we find another $1.8 trillion in cuts in order to raise the debt ceiling again in 2012.

The proposed spending cuts would place a such a harsh additional burden on lower income families that the usually mild mannered Bob Greenstein, Director of the Center on Budget and Policy Priorities, pointed out that Boehner’s plan was “tantamount to a form of ‘class warfare’” and that “it could well produce the greatest increase in poverty and hardship produced by any law in modern US history.”

The new push by both parties for a spending-cuts-only approach stands in great contrast to President Obama’s Monday night address to the nation, which called for a more ‘balanced approach.’

What makes this change in approach even more self defeating is the fact that the anti-tax ideologues have long since lost the public. In fact, well over 19 polls in just the last few months show that the public overwhelmingly favors increasing taxes generally, with larger percentages supporting raising taxes on just the wealthier individuals.

Even after extracting a pound of flesh from Democratic lawmakers, anti-tax forces may still not be satisfied. These groups are pushing for nothing short of passage of the ‘Cut, Cap, and Balance Act,’ hoping to hold the US economy hostage to force through their radical and economically disastrous plan.

The ridiculousness of the absolute anti-tax forces has become especially clear in light of their unwillingness to repeal egregious tax loopholes, such those given to oil and gas companies, hedge fund managers, and many others.

Ironically, the purpose of these extreme cuts is to reduce the ongoing budget deficits, but in fact all of the plans under serious consideration by Democratic and Republican leaders would actually INCREASE the deficit. The problem is that lawmakers simply cannot make up for the outrageous $5.4 trillion cost of extending all of the Bush tax cuts.

Though things are not looking good, hopefully Democratic lawmakers will stand up and not let themselves be blackmailed into accepting ludicrous cuts to spending while large loopholes and tax cuts for the rich remain in place.

Photo via  The White House Creative Commons Attribution License 2.0

President’s and GOP’s Positions Both Include Greater Tax Cuts than Spending Cuts

It’s hard to say what will happen with the necessary increase in the federal debt ceiling. But one thing is clear: Almost anything that the President and the Congress can possibly agree upon will not reduce projected budget deficits. Instead, it will increase them.

A new fact sheet from Citizens for Tax Justice explains the problem that both sides want to extend all or most of the expiring Bush tax cuts. And neither side has proposed spending cuts or tax increases large enough to offset the tremendous cost of such an extension.

Read the fact sheet.

Photos via Rusty Darbonne and Talk Radio News Creative Commons Attribution License 2.0

Recent articles in the New York Times and the Fiscal Times entertain the notion that President Obama's income tax plan will result in unaffordable tax increases for families who make $250,000 a year. One theme of these articles is that in some parts of the country, $250,000 is really not very much to raise a family on.

A new report from CTJ explains that this is wrong on several levels:

1. If enacted in 2011, 84 percent of the revenue savings from Obama’s plan to partially end the Bush income tax cuts would come from people whose income exceeds $1 million annually.

2. A married couple whose income is exactly $250,000 would see no change in their income taxes under Obama’s plan. In fact, most married couples with incomes between $250,000 and $300,000 would see no change in their income taxes. On average, married couples in this group would lose just one percent of their Bush income tax cuts, under Obama’s plan.

3. Only 2.6 percent of taxpayers will even have adjusted gross income above $250,000 (or above $200,000 for unmarried taxpayers) in 2013. Congress should target this group for higher taxes.

4. The attempts to show that $250,000 is really not very much to live on prove nothing, other than how wildly out of touch reporters and opinion-makers are with the rest of America.

Read the report.

In his speech on Wednesday addressing the budget deficit, President Obama skewered the House Republicans’ budget plan as painting “a vision of our future that’s deeply pessimistic.” He pointed out that if enacted, the budget proposed by House Budget Committee Chairman Paul Ryan would mean

- "A 70 percent cut to clean energy. A 25 percent cut in education. A 30 percent cut in transportation."

- "Cuts in college Pell Grants that will grow to more than $1,000 per year."

- Typical 65-year-olds would spend nearly $6,400 more annually on health care.

- Medicare would be turned into a voucher, and "if that voucher isn’t worth enough to buy insurance, tough luck – you’re on your own."

- 50 million would lose health insurance, resulting from Medicaid cuts and the repeal of the health care reform law.

- A trillion dollars in tax breaks for the rich (the extension of the parts of the Bush tax cuts that Obama wants to see expire).

"There’s nothing courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill," President Obama said of the Ryan budget plan.

Ryan’s Goal Is to Shrink Government, Not the Deficit

A report last week from CTJ explains that Ryan’s budget actually reduces revenue, compared to current law and compared to Obama’s proposed budget, which makes it pretty obvious that deficit reduction is not its real motivation. The Ryan plan would essentially make permanent the level of taxation enacted under President Bush and then overhaul the tax system to eliminate loopholes and put the revenue saved towards rate reductions.

The result would be that the highest rates for individuals and corporations would be just 25 percent, and tax revenue collected would equal just between 18 and 19 percent of GDP. To put this in perspective, note that spending was about 21 percent of GDP under President Reagan – and that was before the baby-boomers were retiring, before health care costs had climbed so dramatically, and before we became engaged in multiple conflicts in the Middle East.

The Ryan plan does not spell out in any detail what the resulting tax system would look like – and there’s a specific reason for this. Last year, when Congressman Ryan presented a detailed plan that would allow people to pay income taxes at a top rate of 25 percent, Citizens for Tax Justice found that the plan would cut taxes, on average, for the richest ten percent and raise taxes, on average, for all other income groups. Remarkably, the plan would also lose $2 trillion over a decade.

Even President Obama’s Approach Could Be Dramatically Improved

While President Obama’s approach is vastly more responsible and reasonable than the House Republicans’ plan, it still doesn’t do enough to raise revenue. President Obama would allow the Bush tax cuts for the rich to expire and wants to limit tax expenditures, which are the equivalent of spending but administered through the tax code.

Like his fiscal commission, Obama says he wants an overall deficit reduction plan that cuts spending by two dollars for every one dollar of new revenue. But given that we are one of the least taxed countries in the developed world, at very least that ratio should be reversed. To be sure, much of the new revenue should come from cutting what amounts to spending programs implemented through the tax code, as the President argues.

But it’s unclear exactly what he means when he says he wants to raise $1 trillion in new revenue. If he aims to raise $1 trillion compared to the “current policy baseline,” which assumes that the Bush tax cuts are extended forever, that is mostly accomplished by allowing the tax cuts for the richest two percent to expire, as he has already proposed.

But surely more Americans than just the richest two percent can afford to pay more, especially if budget reform is going to involve “shared sacrifice,” as President Obama says. And surely we can do more than just allow part of the Bush tax cuts to expire, which will happen anyway if Congress does absolutely nothing.

Finally, the President reiterated his call for corporate tax reform to make our businesses "more competitive." Frankly, what we need is to make our businesses pay more in taxes, particularly our corporations. Even Bush's Treasury concluded in a 2007 report that the share of profits paid in taxes is lower on average for U.S. corporations than corporations of other developed countries. To not even attempt to get more revenue overall from our corporate tax system is incomprehensible.

The budget outline released by President Obama this week, just like last year’s proposal, includes about $3.5 trillion in tax cuts over ten years. Most of that cost comes from his $3.1 trillion proposal to make permanent most of the Bush tax cuts, which would cost 81 percent as much as extending all the Bush tax cuts.

The President’s budget outline does include several laudable provisions to raise revenue, but not nearly enough to offset the costs of the proposed tax cuts.

The net effect of the tax proposals in the budget plan would be to reduce federal revenue by $2.8 trillion over ten years, compared to what would happen if the Bush tax cuts simply expired (as they will under current law if Congress does nothing).

Read the report.

This week, Congressional Democrats found that they could not enact policies that economists find to be the most effective economic stimulus (extended unemployment benefits, tax cuts for low-income families) unless they gave into Republican demands to also enact something that provides virtually no economic stimulus — tax cuts for millionaires.

It would be difficult to explain to a high school social studies class how this happened. The majority of Americans want the Bush tax cuts for the rich to expire. The majority of the House of Representatives and the Senate feel the same. So does the President of the United States. In fact, Barack Obama campaigned on allowing the Bush tax cuts to expire, as scheduled, but only for income in excess of $200,000 for unmarried taxpayers and $250,000 for married taxpayers. Over 80 percent of the revenue savings from Obama's (original) plan would have come from millionaires.

And yet, the House and Senate approved legislation to extend the Bush tax cuts for even the very richest taxpayers for two years. This turn of events is a stunning victory for those who want to continue the economic policies of George W. Bush — policies that are as discredited as any could possibly be.

Before the compromise negotiated by President Obama and Republican leaders was accepted, the House passed a bill based on President Obama's original tax plan. The Senate tried to as well but it was filibustered by Senate Republicans. That means Senate Republicans voted against a full extension of the Bush tax cuts for 98 percent of taxpayers and a partial extension for the two percent with incomes above the $200,000/$250,000 threshold.

Senate Democrats then voted on their tax plan again, except with the threshold raised to $1 million, and Republicans filibustered that as well. Republicans literally blocked tax cuts for all Americans in order to secure larger tax cuts for millionaires.

The Senate operates under rules in which a bill supported by 59 percent of the chamber does not have enough votes to pass. This gives a distinct advantage to whichever party is willing to block any and all legislation even if the result will be economic catastrophe. Conversely, it creates a serious disadvantage for whichever party is committed to avoiding that catastrophe at all costs. It's a bit like a hostage situation, in which one party cares about the life of the hostage and the other does not.

And so, the Democrats, committed to providing extended unemployment insurance benefits for an additional 13 months and extending tax cuts for low- and middle-income families, were forced to give into the demands of Republicans who were willing to allow the extended UI benefits to end and were willing to allow tax cuts to expire for families at every income level.

Of course it's true that some of the tax breaks in the compromise plan go to low- and middle-income people. But, as our report explains, over 38 percent of the tax breaks next year will go to the richest 5 percent of taxpayers. Over 25 percent of the benefits will go to the richest one percent — and that's more than will go to the entire poorest 60 percent of taxpayers.

The procedural rules of the U.S. Senate have made that chamber the greatest embarrassment of the democratic world. Meanwhile, the House of Representatives will be controlled for the next two years by politicians who purport to believe that cutting taxes causes government revenue to increase. The political debate is driven by pundits who think that the federal budget crisis will be solved by the coming together of the two parties — even though one of those parties has made it clear that they will only accept a budget overhaul that reduces revenues rather than increases them.

Our sole hope lies in our ability to convince the public that the plans offered by anti-tax, anti-government lawmakers will devastate public investments that American families depend on while enriching the wealthiest Americans. We have pointed out again and again and again that their plans are a disaster for tax fairness and fiscal responsibility. Our work has only just begun.