The media accounts of the tax reform deal being cooked up by President Obama and House Speaker Boehner aren’t all that clear. But it is looking like a big tax increase:
– The White House is insisting that as part of any deal the current tax rates on the middle class—the child tax credit, etc.—would be made permanent, while the lower rates on capital gains, dividends and the higher income brackets would expire after 2012. Taken by itself this would be a tax increase pure and simple and violate the GOP’s campaign pledge.
But here’s what we’re told is Mr. Boehner’s political kicker: The proposed deal would also include some kind of “trigger” device, so far undefined, that would compel House and Senate negotiators to complete tax reform discussions over the next several months. We’re told the White House has said it is open in principle to a top rate of 35% on individuals and something like 26% or 27% on corporations—in return for closing various loopholes.
More troubling than these details is the staggered timing. Republicans would be putting their fingerprints on a tax increase in return for spending cuts as a first order of business, which would raise the dividend and top income tax rates to 39.6% (from 35%), or 41% if you include the phase-out of deductions. (Plus the 3.8% payroll tax hike baked into ObamaCare.) Only then would Mr. Obama and the Democrats negotiate the details of tax reform and lower overall rates. (Wall Street Journal editorial)
– With House Speaker John Boehner’s encouragement, President Obama is pushing for congressional leaders to strike a far-reaching agreement to reduce the deficit by more than $4 trillion over 10 to 12 years, which would include more than $1 trillion in new revenues, officials said. (The Hill)
– Boehner would have to agree to revenue boosts through tax-code reform, including closure of loopholes then coupled with lower corporate tax rates, all of which is designed to spur economic growth. The new revenue could reach up to $1 trillion over a ten-year period, funds that could be used for deficit reduction. Boehner and his top aides insist there will be “no tax increases.” (Politico)
– Such a deal could go as high as an eye-popping $3 trillion in overall deficit reduction, but as much as $1 trillion would be in revenues: $700 billion from letting the Bush tax cuts for the highest income brackets expire and another $300 billion from increased revenues, from auctioning off frequencies, increased payments to federal pension plans and ending agriculture subsidies in addition to ending tax breaks such as deductions for corporate jets, yachts and race horses. The deal would come with a pledge, or clawback provision, to revisit comprehensive tax reform in the coming years so as to offset the higher taxes on the wealthy by eventually flattening and broadening the tax base. (Time)
All very confusing, but the best I can make of it is this: higher taxes now in exchange for a promise of tax cuts later to be “paid for” by reducing tax breaks/deductions/loopholes with perhaps some of that money going toward deficit reduction.
I can tell you this: Democrats need a lot more tax revenue to make their long-term budget plans works. This is why Obama has not offered a long-term budget plan. The need for massive tax increases would then be clear to all. In private, liberal economists all talk about a need for a value-added tax to raise the additional revenue.
But a liberal think with close ties to the White House, the Center for American Progress, recently released a budget plan that goes out to 2035. It shows taxes as a share of the economy rising dramatically to nearly 24% of GDP vs. around 18-19 percent historically. And I am guessing they would go even higher if the table went beyond 2035. If Boehner and the Republicans don’t hold the line now on taxes, this is the American future