The fact is, raising the tax rates will only raise about a quarter of what the president wants as far as increased revenue and about half of what the GOP wants to raise. Other taxes on savings and investments may have to go back to where they were before the Bush tax cuts for revenue targets to be realized.
The top tax rates are taking center stage right now because Mr. Obama believes he won a mandate after campaigning relentlessly on the idea of extending Mr. Bush’s tax cuts only for households with annual income below $250,000. But the two parties also have ideological differences on taxes affecting savings, investment and inheritance, which have flared in battles going back to the Reagan years. To get a deal in the coming weeks, those differences must be addressed at least in broad terms, even if the details are left to a battle over revamping the tax code next year.
The argument over rates is far from settled. Although the two sides seem close enough on the percentages for easy compromise, principle and politics loom large: Republicans oppose raising rates as a matter of ideology, saying that it kills jobs, and the president insists that he will not keep the Bush-era rates on income above roughly $250,000 after two campaigns in which he vowed to return them to the levels of the Clinton years.
“Just to be clear, I’m not going to sign any package that somehow prevents the top rate from going up for folks at the top 2 percent,” he said Thursday.
In recent days, comments from some Republicans, including Mr. Boehner, their chief negotiator, have hinted that the party — recognizing its weak hand — might be moving toward a concession on tax rates. Seldom mentioned is that Mr. Obama’s revenue total also reflects four other changes from Bush-era tax cuts: higher tax rates on investment income from capital gains and dividends, and the restoration of two other Clinton-era provisions limiting deductions and tax exemptions for affluent individuals.
Together those changes would raise $407.4 billion over a decade — nearly as much as the president’s proposal on higher rates, which would raise $441.6 billion by 2023, for a total of $849 billion. Another $119 billion would come from higher estate taxes, opposed by Republicans and some Democrats.
There’s no other word for it: Madness. At a time when the economy is as weak as a day old calf, the president wants to raise rates on investment income to ruinous levels,
Under Mr. Obama’s plan, the tax rates for long-term capital gains and dividends, now 15 percent, would revert to 20 percent for capital gains and to 39.6 percent for dividends, the same as for ordinary income. Republicans oppose the increases, and Senate Democrats oppose the proposed tax on dividends; their bill would tax both dividends and capital gains at 20 percent.
Penalizing people who invest so that companies can grow is stupid and even some Democrats realize that. But why raise taxes at all on what makes the economy go? The GOP’s idea to cap deductions is workable, although the cap may be too low. It is certainly a better idea than discouraging investment and savings by hitting investors with a left hook on taxes.
The GOP continues to give ground on taxes and Obama is responding by upping the ante.