Sen. Schumer Presents His Opening Tax Reform Bid

On Tuesday, New York senator Chuck Schumer announced his opposition to the kind of tax reform deal the Senate Gang of Eight have been trying to hash out. Instead using the money that would be saved by broadening the tax base to lower tax rates, Schumer argued, Congress should just let top rates return to Clinton-era levels, thereby addressing income inequality and lower deficits.

In spurning the framework for reform endorsed by some of his Democratic colleagues, like Dick Durbin of Illinois and Max Baucus of Montana, Schumer is staking out a position to the left of the rest of Democratic leadership, as well as President Obama. In so doing, he’s inviting a class warfare battle with Republicans. More importantly, however, he’s presenting a maximum opening bid in Democrats’ budget negotiations with Republicans.

Schumer’s speech has to be seen as a negotiating ploy, because otherwise it would represent a major step backward in the Senate’s attempt to come to an agreement about reforming taxes. Baucus, Durbin, and others have been working with Republicans for months to lay the groundwork for a compromise agreement, and Schumer has disregarded their progress altogether for a more partisan vision of how things could play out.

Although he’s won some plaudits from left-leaning commentators for dampening the enthusiasm for compromise, Schumer’s proposal is likely not to do more than ruffle Republicans’ feathers and, if all goes as Schumer plans, give the Democratic negotiators a stronger hand to play.

Not only would Schumer have the top individual tax rates revert to the Clinton-era levels, he also advocates bringing the capital gains tax up from its current 15 percent rate to some unspecified level (he only says capital gains rates should be lower than those on ordinary income). Obama’s budget plans for that rate to rise to 20 percent, but Schumer appears to have a significantly higher rate in mind, calling 15 percent “extremely low” and citing the Simpson-Bowles plan, which would have raised the top cap gains rate to 24 percent. And remember, there is already a 3.8 percentage point tax hike on upper-income earners’ investment income coming, as part of the Affordable Care Act.

In addition to elevating income and capital gains taxes from where they are right now, Schumer recommends raising tax revenues by cutting tax preferences and reductions on the scale of the 1986 tax reform. That would be the equivalent of, very roughly, just over a trillion dollars in new tax revenue over the next 10 years. Taken altogether, Schumer’s plan would raise the overall tax burden on the wealthy even more than the president’s proposed budget would.

Given that Obama’s budget is more of a wish list than a guide for legislators, Schumer’s plan is a nonstarter with a Republican legislature or White House.. It won’t ever become law, but that was not Schumer’s purpose. With the other key Senate Democrats already deep in discussions with Republicans about compromise, no one was better situated to tilt the field in liberals’ favor than Schumer. 

 

Joseph Lawler is editor of RealClearPolicy. He can be reached by email or on twitter.

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