Having served up his lite job creation program, President Obama has now turned his attention to paying for it, a very touchy political subject because of GOP intransigence on no tax increases. The core piece of Obama's paying-for-it plan is to allow the so-called "temporary" (now about 10 years old) Bush tax cuts to expire at the end of next year. A few things are immediately to be noticed.
1. Allowing the tax cuts for the wealthy to expire and revert to the 36 and 39 percent rates would bring in future revenues far greater than needed for the under $500 billion jobs program. That would be a big plus for dealing with the long term problem of reducing deficit spending and slowing down the accumulation of debt.
2. One big problem beyond the GOP no-tax-increase-for-anyone mantra is that Obama continues to define the wealthy as a single earner with income above $200,000 and a married couple earning over $250,000. Hardly levels of wealth if you live in one of the high cost areas of the country such as New York, Boston, or San Francisco. There are many, including myself, who regard these levels as too low. The ideal might be a $1 million level as the definition of wealthy so you could say you are going after the millionaires. On the other hand, the $1 million level would reduce the amount of new revenues so badly needed. So somewhere between $250,000 and $1 million might make a good compromise point for concerned Democrats; there is little or nothing that can be done about the GOP opposition on new revenues from tax increases.
3. The new revenues proposed by Obama also extend to altering some of the innards of the tax code. He would limit itemized deductions of the $200,000-$250,000 "wealthy" to 28 percent of taxable income. For example, if the itemized deductions were left untouched, a person in the 39 percent bracket paying a mortgage interest of $20,000 in 2014 on his/her very large luxury home would have a $7,800 deduction on that interest. By limiting itemized deductions to 28 percent, the tax deduction would be limited to $5,600.
Other changes in the tax code would tax hedge fund managers income at the ordinary income rate, say 39 percent, rather than the 15 percent capital gains rate now used. And tax subsidies of $40 billion to the oil industry would be eliminated, as well as some other tax benefits for large corporations.
4. All of this means an immediate replay of the politics of yesteryear when Obama made very similar proposals and failed even with Congress under Democratic control. Thus, with the House now controlled by the GOP, his prospects for success are not exactly encouraging.
What is puzzling, however, is that he is willing to make the big tax increase push despite its dim political prospects, while he apparently was not willing to step forward and be equally bold on his job creation program. Like the covert operations of the CIA, we can only hope he knows something we don't know. But I doubt it.
I completely agree with you on $250,000 not being rich for the reasons you cite. Also, for any family with kids in college etc. $250,000 is not a lot. I do agree with adjusting the taxes on the wallstreeters to pay the same rates as everybody else and not just the capital gains rate. I also agree with getting rid of the tax breaks that the big corporations are getting.
ReplyDeleteThis isn't a good time for increasing taxes on most though with the looming of another recession because of Europe although there is talk of China coming to the rescue. It sounds like Greece is going to default otherwise. I did think it hypocritical that Geithner was basically telling Europe to get their act together with the recent debacle over the US deficit still so fresh.
dpchuck
ReplyDeleteNow if we could just get the Republicans to agree with us. Also Obama on who the wealthy are. I thought after the last time around he would have adjusted his wealth level upward but he seems to have his own mantra on that.
Guess what happens in Europe is largely up to the Germans and, to a lesser extent. the French, both of whom are anchored to protecting their own banks. Guess they are not much different from us, although there is some movement toward a euro bond which would make the banks holding Greek and other shakey debt to eat their losses.. The Greek situation could even get worse if it decides to abandon the Euro altogether and return to the drachma. That would really create chaos in the European financial world.
You would think by now that all of our officials would have learned to stop preaching to other countries, particularly when it comes to handling banking and deficit issues. After October 2008, we should have learned that much, but when you are an "exceptional" nation, you consider preaching your heavenly ordained duty.
I got a kick out of Geithner's "speech" to Europe also and just like was said after the deficit fiasco we just went through. Is there a way to adjust some of the tax loopholes mentioned above especially the ones with respect to corporations not getting tax breaks and leave the middle class alone because $200K / $250K really seems to be middle class and it is small businesses.
ReplyDeleteI do not want to hear Obama talk anymore about his concerns for the job situtation, or rather the lack of jobs situation. He really does not seem to put much behind trhying to solve the problems. It makes no sense to me to cut taxes on social security and then not extend the tax cuts.
Jeffrey
ReplyDeleteLike I told dpchuck above, we somehow cannot resist the temptation to preach to other countries. But it looks especially bad in this case given our role in bringing the world financial system to near collapse in 2008. Guess our putting tons of dollars out to bid, along with other countries, gave him the idea that he could get on his pedestal.
I believe the tax loopholes could be fixed but the Republicans are against anything that is a tax hike. Obama would like to retain the middle class Bush reductions but the GOP puts the "wealthy" and middle class together so any changes hold both groups hostage to the politics.
Yeah, his last jobs speech left one feeling disappointed so hearing anything more, unless it really changes, is not exactly welcome.
My own feelins is that again reducing the social security tax is a bad idea, independent of what he says or tries to do about other taxes.