Ideology helps make Obama stubborn on taxes

September 8, 2010

President Barack Obama’s just-departed budget chief, Peter Orszag, thinks all the Bush-era tax cuts should be temporarily extended to bolster the weak U.S. economy. So does Mark Zandi, the go-to private economist of congressional Democrats. But Obama still vows to let high-end rates go higher again ASAP. His thinking is as much politics as economics.

The White House position, reiterated by the president in a speech on Wednesday in Ohio, is that while the 2001 and 2003 tax cuts for the middle class should be permanently extended, the ones for rich taxpayers, a group that includes some small businesses, should expire at year-end. Even a two-year extension of the upper-end tax cuts, as now advocated by House Republican leader John Boehner, is too much for Obama’s team.

Administration officials argue that the extra tax revenue, expected to reduce America’s deficit by $80 billion over two years, will help persuade markets of the country’s fiscal rectitude. But that’s hardly enough to win over even a fence-sitter. Obama’s budget would still add $2.3 trillion to the national debt over 2011 and 2012. That also assumes higher taxes would have no adverse impact on already sluggish economic growth, an assumption that neither Orszag nor Zandi seems willing to make.

But Obama’s motivations go beyond economics. Insisting that the wealthy should pay more in tax is, as midterm elections approach, a handy rhetorical way to tar Republicans who want to preserve the tax cuts as representatives of the rich. The tactic also pleases a demoralized liberal base.

Obama also has never been a big believer in the power of tax cuts. In his book “The Audacity of Hope” he argued that the high tax rates in effect when Ronald Reagan took office in 1981 — the top marginal rate was 70 percent — had little impact on incentives to work and invest.  And during his presidential campaign, Obama blamed the Bush tax cuts for worsening income inequality. Keeping all of them in place, even temporarily, might personally be a bridge too far.

Even so, he might have to consider crossing it. Republicans for once seem ready to deal. So, too, do many Democrats. Failure to reach any agreement would mean all the tax cuts expire — and almost everyone seems to agree the economy can ill afford that.

Comments

The only reason Obama will not sign off on extending the tax credits is because his pride will not let him even consider the Bush tax cuts were and are still a good thing for the economy. One thing I believe people do not realize is that Obama is intent on economic collapse and he will do it anyway he can. Why not have another $50B dollar stimulus that wont work. He already tried a $1Trillion tax stimulus and it didnt work, lets spend another Zillion. In this manner he will have worked his way through your money and everyones elses. This way everyone will be dependent on the federal government and that is exactly what he and his mafia cabinet want. Come on 2014…………..

Posted by masterwebber | Report as abusive
 

President Obama should extend the Bush tax cuts for another year, or until there is significant growth in our economy. If the economy hasn’t turned around by the first quarter of 2012, then we know that even extending those tax cuts for the 1 to 2 percent of the wealthy didn’t really help. In my opinion, though not an economist, the Fed should raise interest rates a point or two to help get us out of deflationary mode. Second, offer incentives for small business loans so they will hire; and third, as for our tax system, implement a standard 3-prong”flat tax at the federal level.

Annually earnings:
$20 to $50K taxed @15 percent
$50K to $1 million @30 percent
$1 million or more @ 40 percent.

Anyone earning less the $20K per year is exempt.

Posted by raptor12 | Report as abusive
 

I almost don’t disagree that the rich should pay more because there is a growing dichotomy between the rich and the non-rich. But in my mind it is the rich and powerful in congress who are really being dishonest in the fact that they don’t have to have the same health insurance plan as everyone else. Or they don’t have the same type of retirement plan. And they are totally blatant in thinking they are better than others. Finally, which people who think that the rich should pay more in taxes, life Warren Buffet, actually say ok the rules don’t say I have to pay more taxes but I am going to make a voluntary contribution.

Posted by tcwolfe | Report as abusive
 

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