Obama’s Tax Stance: Averting a Class War Within the Democratic Party

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Jason Reed / Reuters

U.S. President Barack Obama delivers a statement calling for a one-year extension of Bush-era tax cuts, in the East Room of the White House in Washington, July 9, 2012.

President Obama said Monday that he wants Congress to immediately pass an extension of the 2001 and 2003 Bush tax cuts for families’ first $250,000 in income. Republicans won’t do this unless Obama agrees to extend the tax cuts on income above $250,000 as well, which allows Obama to argue that Republicans and Mitt Romney are in league with Richie Rich, Scrooge McDuck and Jay Gatsby.

But it’s not just Republicans–or at least it didn’t used to be. A number of high-ranking Congressional Democrats, most of whom represent wealthy parts of the country, have long argued that the $250,000 cut off is too low. House Minority Leader Nancy Pelosi of San Francisco and Senator Chuck Schumer of New York have pushed a $1 million cutoff–until Monday when they backed off their proposals and fell into line with the President. But that doesn’t mean the $1 million compromise line won’t resurface in negotiations with Congress if President Obama wins reelection. (A handful of other Democratic Senators have expressed support for a higher cutoff.)

So what’s the big practical difference between $1 million and $250,000? It matters a great deal if you care about reducing the federal deficit to sustainable levels. It is, in real ways, the difference between tax increases that make a dent in the budget deficit and tax increases that just make a scratch. That’s because its easier to raise revenue by raising taxes on a larger group of people, and there are a lot more families making more than $250,000 than making more than $1 million. According to the Joint Committee On Taxation, the Obama plan, to return to pre-Bush rates on all income over $250,000, would raise $829 billion over the next decade in new revenue. The old Pelosi plan, to return to pre-Bush rates on all income over $1 million would raise about half as much, around $463 billion. Here’s a visualization, courtesy of the Center for Budget and Policy Priorities.

The missing $366 billion would need to be found somewhere if the budget is to be brought into balance, a task that is estimated to entail about $3 trillion in spending cuts and tax increases over the next decade. So where would that money come from? There are only so many answers: Entitlements like Social Security and Medicare, other tax increases by reducing things like the home mortgage deduction, defense spending cuts or cuts to discretionary spending that Democrats often say is essential. As the CBPP puts it, “By forgoing $366 billion in revenue, maintaining all of the Bush tax cuts on the first $1 million of wealthy households’ incomes ultimately would likely lead to much deeper cuts in these other parts of the budget.”

In short, the same logic that underscores the President’s attack on Republicans works against those Democrats who want to continue lower tax rates on incomes between $250,000 and $1 million. If you are serious about reducing deficits to a sustainable level–and there is lots of evidence than many in Washington are not–you have to find the money somewhere. And if it does not come from the wealthy, it will come from the less wealthy. The era of everybody wins is coming to an end.

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Darrel K.Ratliff
Darrel K.Ratliff

Easy just put a tax on all 

anonymous  independent commentary ads that have political content to pay for the use of  public property  as  talk pays the way to rid the nation of debts broadcast on the nations airwaves that do not list   anonymous group ads like the ones by Carl Rove groups  or any Left wing group parallel to Rove that fails to id the authors or owners  in the form of an FCC fee for Broadcasting with no source id  and earmark the total to be paid against current balance of the national debt including any ads taken out by corporate interests failing to identify the responsible authorized party

Ed Dudzinski
Ed Dudzinski

You can't cut deficits and debt with more taxes - never worked, never will.  Study of over 20 countries shows that only one strategy worked - cut spending and cut taxes.  In all of history, increased taxes just end up increasing spending.  Continuing to call for more taxes to cut deficit and debt is historical ignorance and the definition of insanity.

3xfire3
3xfire3

filmnoia,

Your entitled to your opinion but not your own facts.

Obama has done more to harm the economy for all Americans than any other  president in history [my opinion].

He is totally in over his head and is inept, inexperienced and incompetent as  president.

If he get 4 more years he will damage the country beyond recognition.

3xfire3
3xfire3

filmnoia,

Your entitled to your opinion but not your own facts.

Obama has done more to harm the economy for all Americans than any other president in history [my opinion].

He is totally in over his head and is inept, inexperienced and incompetent as president.

If he get 4 more years he will damage the country beyond recognition.

3xfire3
3xfire3

filmnoia,

Your entitled to your opinion but not your own facts.

Obama has done more to harm the economy for all Americans than any other president in history [my opinion].

He is totally in over his head and is inept, inexperienced and incompetent as president.

If he get 4 more years he will damage the country beyond recognition.

filmnoia
filmnoia

"You start a conversation you can't even finish it. You're talkin' a lot, but you're not sayin' anything. When I have nothing to say, my lips are sealed. Say something once, why say it again? "

"Psycho Killer" by The Talking Heads (1977)

3xfire3
3xfire3

Very good point

filmnoia
filmnoia

Hey,  we're laughing at you out here,  ya clown.

3xfire3
3xfire3

Obama plays more political games.

If the tax cut is continued as he proposes it will provide enough money to cover the Federal governments expenses for 8 1/2 days.

Yet he will go all over the country, at tax payers expense, claiming this will be a major help in solving the countries financial problems.

Just another politician that will say anything to get re-elected.

LegalBagel
LegalBagel

Why not just return to the pre-Reagan tax rates?  Then again, we're getting there already anyway.  See http://online.wsj.com/article/.......  BTW, all of the discussion of INCOME tax rates fails to even get into all of the other taxes: property, sales amp; use, energy, utilities, telecommunications, mortgage, sin taxes, etc.  When my wife and I were making a little over $200,000 in New York City, I calculated my combined tax burden over the course of the year 2006 and found that I paid a little under 55% of all money we made in one form of taxes or another.   If we looked at the federal income tax burden only, it was less than half of the total.  The various levels of government really nail taxpayers with their almost impossible to trace layers and types of taxes.  It is a very inefficient, opaque and, frankly, very deceptive system.  The scariest thing is that all of these levels of taxes are still too little to satisfy the appetite of government and the people that use government to line their pockets.

go2goal
go2goal

Anyone earning $ 200 K or more per year should lose the Bush tax cuts....our nation is at war and it's time we start paying for it instead of relying on Communist China to fund our imperialistic warrior ways!  Pay for the war rich white yuppy scum...or step up and serve for FREE!

Steve851
Steve851

The only way to begin to tax our way out of our fiscal mess is to let all the W tax cuts expire.  That'll be a fairly large hit on the middle class since 80 percent of the revenue lost from those cuts was from the middle class, but otherwise, we're talking Ryan-type entitlement cuts.  Either is fine with me, but it's time for our leaders to be leaders instead of the junk we've had for almost 12 years now

Nonaffiliated
Nonaffiliated

First, i want to agree about the GOP.  As long as they were running the deficit to buy votes from their constituency...no problem.  Now that it's the Democrats buying votes for their constituency, the Republicans are suddenly fiscal hawks.  Complete BS.

 

However, that doesn't mean there isn't a problem with the 'print more money' strategy.  When you increase the money supply, you create inflation (I know...not *currently* a problem).  When inflation goes up, the interest on the debt goes up.  Our federal government has a public debt somewhere around $11 trillion right now.  Even with historically low interest rates (the overall average is around 4%), we're paying more than $450 billion per year in interest.  That alone is almost 5 times the size of this tax cut we're talking about.    But, if we continue to print money, inflation will eventually return, the interest rate will go up, and the the chunk of the budget required to pay interest will go up.     

 

You might say, that's ok, just print more money to cover it.  But, you end up in a feedback cycle.  The more you print, the more inflation goes up and the more money you need to print to pay your interest which means you need to print even more.  Eventually, you get hyperinflation and the economy starts to shut down because no one will accept money that depreciates by the hour.  It's happened in countries around the world and it could happen here. 

 

The longer we wait to chain the beast, the bigger and meaner it gets.  We can endure a little pain today, or a lot of pain tomorrow.

 

Paul Dirks
Paul Dirks

One slight detail that everyone seems to forget.

Preserving the tax cuts for everyone except those earning over 250K  was precisely what he campaigned on in 2008 and won.

Say what you will about the strategy, Obama has a rather significant data point that suggests that it will help him. 

William Howard Mueller
William Howard Mueller

You mean Obama is actually going to KEEP one of his 2008 campaign promises!?!?! That's AWESOME!

anon76returns
anon76returns

And that dripping irony is UNEARNED!

Ever heard of health care?  The Dream Act (executive order version)? 

He's kept or compromised to pass nearly 4 times as many of his promises as he's broken:  http://www.politifact.com/trut...

nflfoghorn
nflfoghorn

Republicals and some wimpy midwest Dem lawmakers.

Ivy_B
Ivy_B

He would have kept even more had the Republicans not vowed to oppose anything he wanted to do.