Schumer To Dems: Abandon Simpson-Bowles Tax Model

Senate Democrats’ top political and policy-making strategist is imploring members of his party to abandon a tax reform principle members of both parties increasingly share: that Congress should reform the tax code by closing myriad, costly loopholes, and then use the new revenue to lower tax rates across the board, particularly for the wealthiest.

It’s a break with an increasingly bipartisan orthodoxy, first forged in 1986 when it served as the basis of Ronald Reagan’s tax reform, and more recently with a tax reform model promoted by the chairmen of President Obama’s commission on fiscal responsibility, Alan Simpson and Erskine Bowles.

It’s also an admission that the approach requires adopting a losing negotiating posture.“Tax reform 25 years ago was revenue-neutral. It did not strive to cut the debt. Today, we can’t afford for it not to,” Schumer will say at the National Press Club Tuesday. “It would be a huge mistake to take the dollars we gain from closing loopholes and put them into reducing rates for the highest income brackets, rather than into reducing the deficit.”

Unlike Reagan’s plan, the Simpson-Bowles’ blueprint isn’t revenue neutral. It does call for ending nearly all tax expenditures, and plying the savings into tax rate cuts, including an enormous rate cut for top earners. But it also calls for devoting $80 billion annually to deficit reduction.

Revenue neutral or not, Schumer says any approach that promises up-front rate cuts for high-income earners is a giveaway to the wealthiest, and a blow to the middle class, given current budget constraints.

“A 1986-style approach that promises upfront rate cuts to the wealthy is almost guaranteed to give middle-income earners the short end of the stick,” Schumer will say. “The reason is, in order to raise enough money to both reduce tax rates and cut the deficit, you would need to slash deductions and credits on a far greater scale than we ever did in 1986. Middle-income earners would not be spared.”