The President’s nifty new tax proposal just stinks — politically and mathematically


Today, according to Fox News, the President will make a speech that includes a proposal to raise taxes on those making more than $250,000 per year. Fox says Obama will make the pitch on the grounds of “tax fairness.”

While the effect of this tax warfare strategy for the President during the rest of his re-election campaign is unknown, it does put him in a bit of a tight spot with Congress. As the Wall Street Journal noted this morning, a number of Senate Democrats have gone on the record either opposing the President’s position or being very hesitant to fully back such a proposal. Without their support, such a proposal will not pass the Senate. In fact, I would go so far as to say their opposition could very well embolden Republicans in Congress to call the President’s bluff and offer their own formal counterproposal.

Additionally, the math is not on the side of the President. Using numbers from the liberal Center for Budget and Policy Priorities, which says extending policies for those making over $250,000 would cost the government $829 billion over ten years, the President’s proposal would negate about 1.88% of spending over the next decade. And that assumes we spend what the Congressional Budget Office’s (CBO) baseline estimate says we will — $44 trillion. If we don’t enact the significant spending cuts CBO includes in its baseline budgeting, I suspect spending would be much higher, somewhere in the $47 trillion to $50 trillion range. Which makes the President’s proposal related to fairness when it comes to deficit reduction even more laughable.

Finally, to quote a John Hawkins tweet,

The people who aren’t paying any income tax at all right now are using gov’t services. Is 0 in income tax their “fair share” of the taxes?

While almost all Americans do pay some sort of federal taxes — from taxes on cigarettes to payroll taxes — John’s point is an excellent one: the 50% or so of taxpayers who don’t pay non-payroll income taxes benefit from federally-funded roads, education services, immigration control, the military and other federal services. Who, then, pays for these services? According to the Tax Foundation in an October 2011 report, “The top: 5 percent: earned 31.7 percent of the nation’s adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes.” In short, most taxes for non-retirement social spending — the same social spending liberals are so keen on expanding — are being paid by those people liberals also say don’t pay enough in taxes — the top five percent, whose income was a relatively modest $154,643,000 in 2009, according to the Tax Foundation.

This fight over the Bush tax cuts has been taking place for over a decade, and will continue as we head towards the “fiscal cliff” on January 1, 2013. Unfortunately, this debate ignores what the country really needs in the tax code: a complete revamp that includes elimination of most loopholes, lower rates for all, and a transition to either a low, single-rate income tax system or a national sales tax with no income taxes. While the Journal seems optimistic that extension of the Bush tax policies would leave room for major tax reform, I think the President’s nifty new proposal basically undercuts the entire debate, substituting economically fair and growth-encouraging tax reform for class warfare that encourages no growth and barely makes a dimple in the debt the country is about to accumulate.

[Originally posted in the Hot Air Green Room.]

 


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