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Plan B: Job Losses, Middle-Class Tax Increases, and Trivial Deficit Reduction

John Boehner

SOURCE: AP/J. Scott Applewhite

House Speaker John Boehner (R-OH), joined by the Republican leadership, speaks to reporters about the fiscal showdown negotiations with President Barack Obama following a closed-door strategy session at the Capitol in Washington, Tuesday, December 18, 2012.

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House Speaker John Boehner’s (R-OH) latest gambit to avoid making a deal to resolve the ongoing fiscal showdown would seriously damage the economy, raise taxes on millions of middle- and low-income families, and accomplish almost nothing to meaningfully address our long-term budget challenges. Other than that, it’s a great idea.

Earlier this week, President Barack Obama made House Republicans an exceedingly reasonable offer that moved more than halfway between each side’s starting bargaining positions. But instead of taking the deal or making a reasonable counterproposal, Speaker Boehner rejected the president’s offer and instead turned to what he is calling “Plan B.” Plan B’s patina of compromise—it allows a portion of the Bush tax cuts to expire for those with incomes of more than $1 million—is merely a shell of a plan that is bereft of seriousness and does way more harm than good.

Plan B does absolutely nothing to address the budget sequester, the expiring payroll tax cut, upcoming automatic cuts to Medicare doctors, or lapsing unemployment insurance. According to the Congressional Budget Office, failing to deal with these issues will result in up to 2.7 million fewer jobs next year. Plan B would, in short, be a disaster for the economy.

Plan B also fails to extend several expiring tax credits that benefit low- and moderate-income families. As a result, more than 20 million families would see a substantial tax increase next year, and that’s before taking into account the expiration of the payroll tax cut, which affects everyone with a job. By contrast only about 300,000 millionaire households would pay more in taxes under Plan B. In fact, the total tax increase on middle-class families is about the same as it is for millionaires. If you include the effect of the expiring payroll tax cut, then the Plan B middle-class tax hike is actually substantially larger than the plan’s millionaire tax hike.

But even after hiking the taxes on millions of middle-class families, Speaker Boehner’s Plan B accomplishes virtually nothing for long-term deficit reduction. Relative to today’s policies, Plan B would reduce the deficit by about $500 billion over the next 10 years. That’s not even one-fifth of what President Obama’s offer would do. Needless to say, it would not come close to arresting the projected rise in the national debt, measured as a share of GDP.

To recap: The plan consists of massive job losses, a middle-class tax hike, and almost no deficit reduction. So why in the world would Speaker Boehner put this plan forward at all? For one, it keeps taxes on the very rich lower than they would be with other proposed alternatives. In fact, relative to the bill passed by the Senate last summer, which would extend the Bush tax cuts for all income up to $250,000, Plan B allows millionaires to keep at least an extra $50,000 a year in tax breaks.

Plan B, at its core, is a cynical plan to confound the debate; an attempt to divert attention from an unwillingness to adopt the balanced approach that all serious people recognize as a necessity—and the economy, the middle class, and responsible budgeting all become collateral damage. Just what the country needs as the clock ticks down on the “fiscal cliff.”

Michael Linden is the Director for Tax and Budget Policy at the Center for American Progress. Michael Ettlinger is the Vice President for Economic Policy at the Center.

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