What's in Plan B?
UPDATE: The Joint Committee on Taxation has scored Plan B as costing $4.1 trillion over ten years, savings of $400 billion over a full extension. Both the text and the graph have been updated to reflect this score. Tax Policy Center has also produced distribution tables of Plan B.
There has been much speculation in these last few days about where the fiscal cliff negotiations might be heading. One piece that has added to the conversation is House Speaker John Boehner's (R-OH) so-called "Plan B."
The plan includes a partial extension of the 2001/2003/2010 tax cuts and Alternative Minimum Tax patch. From the tax cuts, Plan B leaves out:
- The extension of the 35 percent rate for people making more than $1 million. It will instead revert to 39.6 percent.
- The extension of the 15 percent rates on capital gains and dividends for people making more than $1 million. Those will instead rise to 20 percent, consistent with the Senate Democrats' tax cut extension but with a lower tax rate on dividends than President Obama calls for (39.6 percent for millionaires).
- The extension of the 2009 refundable tax credit expansions that were previously extended in 2010. These expansions would shrink the earned income tax credit and child tax credit, while replacing the American Opportunity tax credit with the non-refundable Hope credit.
The Joint Committee on Taxation has estimated that Plan B would cost $4.14 trillion over ten years. Compared to a full extension of the tax cuts, this would save about $400 billion.
All of the other tax cuts for income below $1 million, the estate tax parameters from the 2010 tax cut, and the repeal of the personal exemption phaseout (PEP) and Pease limitation would be continued. Importantly, Plan B does nothing about the other parts of the fiscal cliff beyond the tax cuts and AMT patch. Clearly, as its name indicates, it is not intended to be a cliff replacement plan, but rather an if-all-else-fails option. Lawmakers would have to come back to the issue to address the other parts of the fiscal cliff and the additional deficit reduction necessary for sustainability.
The graph below is our estimate of what Plan B would do to public debt. We show different scenarios assuming that literally nothing else is done with the cliff (current law), the doc fix is extended and the sequester is repealed without being offset, and current policies are extended one year at a time and offset over ten years. These scenarios are compared to the CRFB Realistic Baseline. These figures could be slightly higher depending on what was done with the payroll tax cut and unemployment insurance benefits.
Source: JCT, CRFB calculations
We will provide further analysis as more information comes out.