Obama Tax Hikes: Why The President Wants to Raise Tax Rates

The proposals to avert the fiscal cliff are neither right nor wrong. Frankly, the country is split regarding how the deficit should be reduced, although a majority currently favors an increase in taxes for the rich. However, the Republican-controlled House of Representatives is not of the same mind as the majority of Americans. Some would say House Republicans are less conflicted than the electorate. After all, the tax increases would affect only 2% of Americans, so why wouldn’t the other 98% be in favor of it?

The electorate would accept higher revenues in the form of tax benefit reform in lieu of higher income tax rates. The problem is that our president is ideologically bound to an increase in the income tax rate, or maybe it is his way of avenging the disrespect showered on him in earlier budget negotiations.

Why would Obama care where revenues come from, so long as they are received exclusively from wealthy Americans? Well, he shouldn’t. But, there are two other flies in the ointment. One is that Obama keeps saying that $800 billion or $1 trillion or $1.2 trillion cannot be derived from capital gains and other tax deductions currently available to the rich. This is absolute nonsense. To reiterate, the president wants to get his way and get even. In his mind, the way to do so is to raise income tax rates on all the 'fat cats,' those 'who don’t pay their fair share,' those who are flying around in private planes, and all those who eat in four-star restaurants.

The other fly is represented by special interest groups that benefit by rich people spending money, making investments, buying big houses, and the like. Every proposal to increase revenues and/or cut spending is going to piss off someone. Our leaders are going to have to man up and impose suffering on a lot of people to save the nation from a financial calamity.

If Republicans can see their way to reducing tax benefits for the rich that add up to what Obama wants, why the hell doesn’t it just get done? Maybe Republicans could also live with a small increase of one or two percentage points for the highest wage earners as a sign of good faith, with the balance coming from tax benefit reform.

For the third time, I offer the following chart in a PolicyMic essay.

 

It is impossible for me to calculate how much of these benefits apply to the rich ($250,000 or more in wages). But, lets assume 20%. During the next five years, the aforementioned benefits will decrease tax revenues by $4 trillion, or $8 trillion over ten years. 20% of the latter amount is $1.6 trillion, which would be more than enough to satisfy any deal being negotiated between Obama and Boehner.

In the last couple of days, I read stories in the paper in which special interest groups objected to two of the items on in the list. One is charitable deductions. As expected, not-for-profit organizations believe they will be impacted if the deduction for charitable giving is reduced especially since rich people do most of the giving. Isn’t it ironic that the government needs the lost tax revenues and poor people, schools, and hospitals need the same money? The rich are innocent bystanders in this debate. In reality, the wealthy will not decrease contributions materially based upon tax deductions. Most of the super wealthy do not need or care about them.

The second was a reduction in the deductibility of state taxes. A New York Times editorial  indicates that state and local municipalities will be under pressure to reduce taxes if deductions were not allowed. This will lead to a reduction in social services. What nonsense. The deductions would only apply to the wealthy, so there will not be a significant response against this action.

And so, we will likely hear from the real estate industry about the deductibility of mortgage interest (and real estate taxes for that matter), the investment industry about increasing the capital gains tax, the insurance industry about taxing medical insurance provided by employers, and so on.

I say do the damn math and determine whether 20% of these deductions are applicable to the rich. If it is, put it on the table and start negotiating. Rich people are prepared to take a hit, really they are.