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Senate Budget Plan: Big Tax Increase

7:10 PM, May 10, 2011 • By MICHAEL WARREN
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After several months of bipartisan gangs, presidential commissions and summits, and rhetoric from leadership, the Senate has still not passed a budget resolution. And even more meetings at the White House about budget deficits this week mean the delay continues. Finally, though, there seems to be some progress: Senate Democrats finally have a budget proposal that most of the caucus seems to be satisfied with.

According to the Hill, Senate Budget Committee chairman Kent Conrad (D-N.D.) presented a proposal to the Democratic caucus today that contains an even split of spending cuts and tax hikes:

Senate Majority Leader Harry Reid (D-Nev.) said “$4 trillion is a number that has been floated around here because that’s what the Bowles-Simpson deficit reduction plan came up with,” making reference to the fiscal commission established by President Obama.

“We’re looking at large amounts of money that we have to work toward saving,” said Reid. “But it can’t all be done by cutting domestic discretionary spending.”

Reid said “what Sen. Conrad presented to the caucus today is 50-50”, when asked about what should be the ratio of spending cuts to tax increases.

Conrad’s first draft budget, which he said “borrowed” from the president’s National Commission on Fiscal Responsibility and Reform, was apparently not well received among Democratic caucus members last week. This retooled plan, however, seems more to the Democrats' liking.

So whither the so-called “Gang of Six”? Since March, the Gang, which contains three senators from each side, including Conrad, has been trying to reach a budget agreement based on the fiscal commission’s plan. Conrad's "50-50" plan is a departure from the fiscal commission, which recommended fewer tax increases. The even split appears to be a concession to Budget Committee member and self-professed socialist Bernie Sanders (D-Vt.), who told the Hill that, at a "minimum," half of the reduction of the deficit should come from increases in tax revenues.

If a "50-50" budget requires $2 trillion in tax increases over the next decade, it's likely going to take a lot more than repealing the Bush tax cuts on the wealthiest Americans, which, according to the White House's numbers from its FY2011 proposal, would only reduce the deficit by around $700 billion. This means tax hikes on the middle class, such as an increase in the federal gas tax as recommended by the fiscal commission, are most certainly on the table. Such a proposal could pass the Budget Committee, but would the Democratic senators seeking reelection next year vote for a budget that would necessarily raise taxes on the middle class?

Besides, while an even split between tax increases and spending cuts might satisfy liberal Democrats in the Senate, historical evidence shows that among developed countries facing severe debt crises, those that cut more in expenditures than they raised in taxes were on average more successful in winding down their debt. And while the details of the "50-50" budget haven't been released, it's unlikely the $2 trillion in spending would address the largest spending driver of our debt--Medicare.

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