Obama’s new plan may actually rely 60 percent on tax increases

April 15, 2011

In his budget speech earlier this week, President Obama described his budget plan this way:

It’s an approach that achieves about $2 trillion in spending cuts across the budget. It will lower our interest payments on the debt by $1 trillion. It calls for tax reform to cut about $1 trillion in tax expenditures — spending in the tax code. And it achieves these goals while protecting the middle class, protecting our commitment to seniors and protecting our investments in the future.

Now with all these plans floating around — the debt commission, Paul Ryan’s — Goldman Sachs has tried to do an apples-to-apples comparison over 10 years (not 12 as White House tried to pull off). And here is what it found:

gsSo of the 3.4 percentage points of savings, more than half — 1.9 points — comes from taxes. That’s 56 percent, not the one-third or one-quarter that Obama was talking about. And I am assuming that Goldman is using the White House’s rosier economic forecasts when evaluating Obama’s plan. (Ryan uses the gloomier ones from the Congressional Budget Office.) I think the Republicans will be pointing this out.

UPDATE: Here is one more key bit from the Goldman Report:

Measured against the CBO alternative scenario, the President’s proposal relies more heavily on increased revenue than the other proposals. It assumes that the $1 trillion in proposed revenue increase (over 12 years) does not include the additional $700bn (over ten years) from allowing the upper-income tax provisions to expire; the President’s spending cut proposal is on the same general scale as the external commissions, though somewhat smaller, at around 1.5% of ten-year GDP.

To be clear, Obama is abolishing the Bush tax cuts for $250,000 and  an additional $1 trillion tax hike.


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You’re not taking into account that several of the proposals that appear to achieve more savings than Obama’s do so by axing programs for the elderly and the poor, aka the vulnerable.

That makes it all much, much easier.

Look one level deeper, and try harder next time.

Posted by Adam_S | Report as abusive

This is all becoming so annoying. The solution is a flat tax. (Income-deductible)*tax rate=tax owed. It can be truly that simple and there are no loopholes. Eliminating all loopholes will force all Americans (even the wealthy ones) to pay taxes. As a result, the nominal tax rate will be much lower, on the order of 20% (the deductible lowers the real rate even further for most people and makes a flat tax very progressive). The tax code is a travesty and a tragedy of wasted time, effort, and talent. Get rid of it.

Posted by mheld45 | Report as abusive

Pethokoukisis yet another shill for the Cato Institute, American Heritage, which basically sees the only solution for a fiscal health in the USA is to cut out all government expenditure that targets the middle class, yet continue to raise the middle class taxes either with VAT, higher state and local (federal push back to the states to fund many programs). This in the face of the lowest tax rate in nearly a century for the upper 1%.

Though I think a flat tax is regressive, a 25% tax rate on all income (cap gains, interest, dividends, W2, 1099) would actually be fairer to the middle class at this point.

The simple truth is that the total Federal deficit (excluding the expenditure on the 2 wars) is equal to the amount of tax savings the upper 1% have seen since 1984 when the post WWII tax rates and brackets were changed. If the upper 1% were paying 70% income taxes and hedge funds and Wall Street traders were paying 70% tax rate on short term cap gains, there would not be a federal deficit.

Additionally, you could argue that we would not be living through a boom/bust economy for the past 25 years if short term gains were taxed at 70%. Speculation would not have been profitable enough and probably wouldn’t have taken over the financial markets as we have now.

And if you think 70% is high, my effective tax rate TODAY (live in NYC) is around 56% if I include federal, state, local, sales, real estate, and all those lovely excise taxes on utility, phone, cable bills. So compared to what a middle class family pays today in TOTAL taxes, a 70% tax rate on the top 1% is certainly fair.

Posted by Acetracy | Report as abusive

So what are the number of people who will be burdened beyond belief with a flat tax?

$25,000 (income less standard deduction) translates
with a 25% flat tax to about $1,560 per month to pay for
state /local increasing taxes and survival.
$50,000 translates with 25% flat tax to about $3,120
per month.
$250,000 translates with same rate to $15,600 per month.

Instituting flat tax across the board would cause social unrest much more than we have now.

As it is, most of the plans do not consider what
unaided poverty will do to the very fabric of civility.

Posted by limapie | Report as abusive

A little history lesson shows that raising taxes on the wealthy produces less revenues. When Harding/Coolidge lowered taxes in the mid 20′s he went from 11% unemployment to 3.5% and went from 700 million to over 1 billion in revenues with the wealthy paying over 60% of the taxes. Hoover and FDR raised the tax rates and by 1935 they were doubled and the revenues went from over 1 billion to a mere 500 million.

Combine the tax rate deductions that produced the same results of the above like JFK, Reagan and Bush with spending cuts and we will get deficit reductions in the name of growth.

“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
– John F. Kennedy, Nov. 20, 1962

Posted by StevenJS | Report as abusive

Oh please… trickle down Reaganomics is not a reality.


For those who are the ruling elite, of course they do not wish to lose the taxpayer servants classes, but they are not concerned that the lower class is slipping towards a poverty class…

America may still be a fairly rich country, but only a small percentage are rich. JFK did not have to protect the middle class from extinction.

The Republican solution is to address the budget by removing Healthcare … their idea of budget and healthcare reform. The poor get poorer and rich get richer. The gaps are too big already and there is a 2 tier justice system to match the social system.

The expanded economy makes the rich able to buy more… but the profits and productivity are offshore…

Posted by hsvkitty | Report as abusive

Obama doesn’t go far enough with tax increases. The Bush tax should be repealed retroactively to when they were enacted. This country can’t afford billionaires and it’s time we stop pampering them and make them pay up.

Posted by Grousefeather | Report as abusive

This article offers no substance, only rhetoric. Where the tax increases occur is important, not just an imaginary number. The low rate on capital gains is counterproductive the the economic health of the nation. Only if those capital gains are the result of investment in manufacturing or some other worthwhile job generating activity, then it would be helpful toward economic health. Speculative activities should carry a higher rate, not lower, as those activities manipulate stock markets and drive up costs of commodities. It has been estimated that up to one quarter of rising food and petroleum prices are due to speculation in those markets.
The Republicans have for years reduced upper income and corporate taxes under the guise of increasing investments in jobs, while the actual numbers of jobs decreased during that time. Reaganomics is a total failure. I support the President’s corrections of the tax codes.
For those calling for a flat tax, that is just another form of Reaganomics, where the wealthy avoid paying increased rates, and the poor and middle class pay part of the share of the wealthy.

Posted by aligatorhardt | Report as abusive

This article and comments are grotesque and miss the entire point. This is NOT a hypothetical numbers assignment at accounting school.

We are talking about performing major open heart surgery on a very ill nation. As always the objective is to salvage the whole patient and restore him.

The author and bookkeepers writing here have decided that the ONLY goal is spending less than needed to maintain the social, political and civil fabric of this nation. Cuts in a vacuum are always meaningless.

These are the same kind of crazy cuts the Republicans proposed in the 30′s Depression.Thank God they were stopped. Today, against blind cutting we have a balanced plan from the President.

But these are more than budgets. They represent each party’s image of government’s role. The GOP says ONLY: “cut and destroy”" . The Democrats now say “Build and Prosper”.

The Ryan plan means the end of the US social fabric and doom. The alternative is to finally seek the light.
And without light there is no future.

For us or this nation.

A S Prisant/COO/Prism Ltd

Posted by prisant | Report as abusive

I swear some of you people are nuts. Raising our taxes is not the solution to the problem. It is time for self responsibility. We need to end with our social programs. No more Social Security, Medicare,HUD,Food Stamps,Medicaid,Public school, and every other hand out the tax payers pay for. Just buy cutting all these programs we will be able to save trillions of dollars and cut taxes. So it’s your choice America we start cutting our programs now and save America or just keep going on the same path to the destruction of America it’s up to you.

Posted by mailo24 | Report as abusive


Posted by mailo24 | Report as abusive


Posted by mailo24 | Report as abusive

Let those who own the country pay for it.

Posted by vinlander | Report as abusive

Relying on tax increases to close our budget is myopic. Our country has 12 million unemployed people that went from taxpayers to government dependents. The “rich” are the people who drive consumer purchases. When their disposable income drops, due to tax increases, demand for products will go down. This will force companies to downsize again, adding to the government burden.

Posted by djaymick | Report as abusive

Acetracy, do you have even a shred of evidence to support your wild assertions? “The simple truth is that the total Federal deficit…is equal to the amount of tax savings the upper 1% have seen since 1984 when the post WWII tax rates and brackets were changed. If the upper 1% were paying 70% income taxes and hedge funds and Wall Street traders were paying 70% tax rate on short term cap gains, there would not be a federal deficit.” Simple truth? Where is your simple proof? And what’s your beef with the upper 1%? In the midst of bloviating about all the other taxes you pay, how could you have failed to notice that the “rich” also pay the same taxes, and more of them? Tired of paying so much in taxes? Move to Texas, dude!

Posted by OldBull | Report as abusive

FLAT TAX, Term limits. Problem solved.

Posted by zotdoc | Report as abusive

There are really only two questions to consider.

Do you think America should pay its debt?

Where can government come up with that kind of money?

Consider that there are about 300 million people in the US. About 150 million Americans are children, retired, disabled, etc. That leaves 150 million to pay America’s bills. age or disability.

Depending which data you care to use, 15 to 30 million of these workers are unemployed. 75 million workers make less than 25K per year. 40 million Americans are on food stamps.

Now revisit the first two questions I asked and don’t be surprised if the answer to the second question now includes you.

Posted by breezinthru | Report as abusive

@mailo24, anyone who doesn’t think as you do is crazy…. right? And “down with social programs!” (until it is you who are sick, injured, unable to work, laid off, fired, retired etc etc etc)

Posted by hsvkitty | Report as abusive