Obama Proposes Nothing Radical on Taxes. Too Bad.

By :: July 9th, 2012

President Obama today urged Congress to extend the 2001/2003 tax cuts for households making $250,000 or less and insisted lawmakers let those provisions expire for those making more. As the president himself said, “I’m not proposing anything radical here.”

He’s right. And that’s too bad.  This was an opportunity for Obama to at least tie an extension of the Bush-era tax cuts to tax reform and deficit reduction next year. But instead of using his bully pulpit to demand such a linkage, Obama offered little more than a vague suggestion:

“Next year, once the election is over, [once] things have calmed down a little bit, based on what the American people have said and how they’ve spoken during that election, we’ll be in a good position to decide how to reform our entire tax code in a simple way that lowers rates and helps our economy grow, and brings down our deficit — because that’s something that we’re going to have to do for the long term.”

Not exactly a ringing endorsement of either tax reform or deficit reduction. Not exactly leadership either.

Of course, a demand that Congress link an extension of the Bush-era tax cuts to long term fiscal reform—especially one made in the heat of campaign season—would be entirely unenforceable. Just look at how Congress is responding to the deadlines it set as part of last summer’s debt limit deal. Still, the president could have tried a lot harder to push Congress for a quid pro quo.

Instead, Obama chose to replay the politics of the past 3 ½ years. His message: “I want to cut taxes for regular folks and raise them for rich people. Republicans are willing to raise taxes on regular folks to protect their rich pals.”  The Republican counter: “Obama favors job-killing tax increases on small businesses and other job creators.”

This is tiresome and not productive. The last time the two sides danced this dance, we got a debt limit crisis that, at best, added uncertainty to an already-nervous economy. Obama’s announcement today moves us toward yet another replay of that dismal experience.

 

 

10Comments

  1. AMTbuff  ::  12:45 am on July 10th, 2012:

    Radical delayed-action changes are required, including major limitations in Medicare and Social Security eligibility and benefits to the non-needy, starting 5 to 10 years from now. Once sufficient spending reductions are enacted, delayed-effect tax changes should also be enacted. These should include Bowles-Simpson style reforms. Enactment of this 1-2 package would stimulate the economy like nothing else.

  2. Non-Needy  ::  8:08 am on July 10th, 2012:

    Define non-needy. Is that someone like me that grew up with nothing, put myself through school, saved first my whole life, did without a lot of things, put a minimum of 200k on any car I drove, never put something on a credit card that I couldn’t pay when the bill came, and was just generally responsible with my finances so that now I don’t have to work? I bet non-needy isn’t a good friend of mine that I went to college with who spends every dime he makes, always has a new car and the latest gadget, and is up to his eyeballs in debt.

    Why should I be punished for being responsible and be rewarded for being less so?

  3. Non-Needy  ::  8:10 am on July 10th, 2012:

    Correction…”and he be rewarded…”

  4. Ralph H  ::  11:49 am on July 10th, 2012:

    Same old stuff. Appeal to the young, the poor, union members, and guilty professionals without regard to facts. First, in a competitive world environment we must improve our business environment so that ultimately we employ more people. Secondly, we can not put a significant dent into the budget deficit without raiseng taxes on all people, or reining in spending (or both). We need an intelligent debate on taxes, with a focus on how to raise sufficient funds in a way that is pro-growth. Do not expect this till after the election.

  5. Dave Thomas  ::  6:20 pm on July 10th, 2012:

    It sounds like the author of this piece is completely ignorant of the massive tax increase on investment income that is coming in January 2013 because of the ACA.

    Nothing like an advocate of tax and spend liberalism that Americans have been rejecting in every election since 1980. Obama didn’t run in 2008 as a tax and spend liberal, but he sure is in 2012 and that dooms his campaign.

    It is quite depressing to see a think tank like Brookings get is so wrong on the effects of tax policy on job creation and economic growth.

  6. AMTbuff  ::  6:37 pm on July 10th, 2012:

    Non-needy would be based on lifetime earnings. Otherwise the moral hazard is too high.

  7. Michael Bindner  ::  9:23 pm on July 11th, 2012:

    I wrote the White House on this. Here is what I said:

    Mr. President:

    It is with great interest that I see you have, yet again, called for extending middle class tax cuts while allowing tax cuts on the top 2% to expire. Frankly, sir, I fail to see how this strategy works now when it has not worked for your entire presidency. In 2010, it did not even work politically, as the Republicans stood their ground and no pre-election debate to embarrass them ever took place in the Senate. Let us not be outflanked again, as the result was, in the area of tax policy, we have a third Bush term. The truth hurts and as a voter, I am not sure that I can go along with tax policy votes that don’t actually raise tax rates on dividends. I would almost rather see all the tax rates expire instead. This would allow greater government spending, which means I might be able to rejoin the civil service or government contract community. With a Master of Public Administration and no job, I can do little else.

    Please allow me to offer a different menu of compromise provisions. If enacted, they will benefit our family much more than the measures you have resubmitted into the congressional sausage machine.

    1. Eliminate all tax exemptions, replacing the individual and spousal exemptions with a larger standard deduction while increasing the Child Tax Credit and making it permanent. Increase it still further by eliminating the Earned Income Tax Credit and make it refundable for all earners. Allow for negative withholding so that families who are not paying income taxes need not file to get their money, unless there was an error in how the credit was distributed (such as double crediting to both parents). Allow the 10% tax rate to expire and shift that savings to a higher child tax credit as well. Pay the child tax credit to non-workers and end the inadequate SNAP program.

    2. Lower the income cap on the employee contribution to Old Age and Survivors Insurance (to lower high income benefits) and shift the remainder of employee FICA taxes, as well as the employer FICA tax.

    3. Enact a Value Added Tax – with the employer contribution to OASI credited equally for all full-time workers (decoupling it from the employee contribution).

    4. Increase the standard deduction on personal income taxes so that the vast majority of families need not even file – while increasing the VAT accordingly to cover non-payroll tax contributions to Medicare and to cover federalizing Medicaid.

    5. Set corporate and personal income tax rates, dividend rates and capital gains rates to between 25% and 29% (negotiate to 27%) if a VAT solution is accepted.

    6. If a VAT is not possible, leave payroll taxes alone for now, and extend the income tax rate cuts for another year, while allowing the capital gains tax rate, Pease rate and Health Care Reform non-wage income tax provisions to take effect January 1. Increase the dividend rate to 20% (which after Pease and non-wage additions becomes 25%).

    These proposals give both sides something, while not increasing taxes for the vast majority of lower middle class families. The upper middle class can likely afford higher taxes and will vote for you anyway. The important thing is to allow dividend and capital gains rates to go up to essentially a 25% rate, as when these rates are too low large employers have a strong interest in continuing to reduce labor costs, which keeps unemployment high.

    Respectfully,

    Michael Bindner

  8. Michael Ator  ::  10:39 am on September 7th, 2012:

    This is a totally radical idea:
    How to solve these problems:
    1. Reduce unemployment by 2.5 points to 6%.
    2. Provide an immediate stimulus for the majority of US businesses and a tax break and for the majority of American workers andwithout Congressional approval.
    3. Provide subsidies to US corporations who face competition that is subsidized by their governments without taking money from the federal government or raising international trade issues.
    4. Provide a method to reduce the US governmental deficit and debt without Congressional involvement.
    5. Provide a stronger foundation for the Social Security pay than the tax system.
    6. Provide a vehicle for older investors who need a higher return with low risk and liquidity.
    I have a suggestion that will solve all of the above and can be implemented immediately. I would like to help to do this.
    There are several factors that make my solution workable.
    • The president can do everything in my plan by executive order-no congressional approval necessary.
    • My solution will significantly reduce the cash cost for corporations of their payrolls and their accounting which will receive the backing of all corporate management especially smaller corporations.
    • It will provide a large cash influx to all trading corporations-both large and small with no net cost to the treasury.
    • It will provide an additional support to SSI , Medicare, and Medicaid, independent of the tax payer supported system.
    • It will provide a much more efficient method to curtail corporation abuses especially foreign corporations.
    • The Treasury will be able to pay down the huge debt owed to SSI.
    • Older investors will support the implementation of these solutions because it will open the opportunity to invest in a low risk, liquid investment that should provide a much higher return then current comparable investments like saving accounts.

    The easiest part of the solution is a simple accounting change. Eliminate the current requirement for an independent audit of the filings of publicly traded corporations. It is redundant and an expensive burden particularly on smaller corporations. Both the SEC and FINRA review all filings. So why have three reviews of the same information? I do not think anybody would object to this except for the auditing firms, of course.

    The second part of the solution is to allow all trading corporations to pay their corporate taxes, pay roll withhold, and federal penalties with new issue common stock. The Treasury will set up a mutual fund and these stocks would be paid into them. The NAV shares of this fund would be exchanged for debt certificates held by SSI. Other shares would be sold to the public.
    A possible stimulus would be to return the funds gathered from the trading corporations and their employees over the last two years in exchange for new issue common shares. This would not cost the federal budget at all. In fact, the stocks should increase in value dramatically resulting a net gain.
    This stimulus plus the reduction of the cash cost of salaries should reduce the unemployment rate by 2-4%.
    Productivity and the ability to compete will be greatly enhanced.

  9. Maricela  ::  2:51 am on December 6th, 2012:

    According to the The Beacon Hill Institute calculated that the base for the Fair Tax would be 81% of 2007 GDP, or $11.2 tloilirn. A 23% sales tax would collect $2.6 tloilirn, which is $358 billion more than the income tax that it would replace. Look at the bigger picture, Where will the government all this money to fund all the basic services such as health care, transportation, sanitation. You are also enjoying the benefits.

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