Obama should compromise on tax rates for highest earners

[anvi]

Depends on how much he can get in trade, but I doubt whether there is much room on cap gains, or whether it makes lots of sense to adjust that rate either.  But, Beet, are you suggesting that the rates stay where they are in exchange for such concessions?  What about taking out the loopholes and carried interest in exchange for lowering marginal rates to above where effective rates are now?

[anvi]

Wow, Beet, I just looked at some figures for how much revenue could be generated by capping itemized deductions at various levels, and the numbers are pretty decent.  Depending on where you place the cap, you could raise revenues in this way by between $130-170 billion a year, and since the top quintile and especially the top 1% of income earners claim the bulk of deductions, doing that would be pretty progressive.  In comparison, assuming current tax rates at all levels are extended, the "Gang of Six" plan called for about $120 billion extra a year, Simpson-Bowles tax reforms would raise about $110 billion a year and Obama-Boehner I got about $80 billion a year.  Good grief, I really had no idea there was that much to be recouped from scaling back itemized deductions.  

[anvi]

If we really can get as much, or what even looks like a bit more, revenue from capping deductions as we can from rate hikes and cap gains hikes, then I'd be totally fine with it.  There is after all a lot of economic bang for the buck in keeping cap gains on the low side, and anyone who doubts that should ask Bill Clinton.  I'm not fussy about how we raise necessary revenues, and as long as we can raise them, it makes good sense to go with what is relatively better for the economy as a whole.

[anvi]

I'm going to officially jump on Beet's bandwagon.  I'd be interested in responses from all forum members to the following.

Why not capture revenue with a cap on itemized deductions?  If it could be combined with a rate reduction, AMT elimination, and an elimination of the "double-tax" on C-corps, it would seem to achieve what Pubs want out of tax reform.  It was one of Mitt's ideas.  At the same time, it seems to capture a lot more revenue than upward rate adjustments would, plus its implementation would be highly progressive, which are two baseline demands of Democrats  See the site below.

http://taxvox.taxpolicycenter.org/2012/10/17/how-much-revenue-would-a-cap-on-itemized-deductions-raise/


So, what do you all think?

[anvi]

So, just to be clear, on the Pub side, only straight tax cuts are acceptable, and on the Dem side, even if an alternate plan would raise more revenue and still be highly progressive, Obama should just stick with a straight rate-hike?

Ok, then, got it.

[anvi]

Because any bill that goes through has to pass the House.

[anvi]

Well, I guess I thought an added perk of this approach was that it might be more economically advantageous.  But, we'll see what happens, I guess.

[anvi]

I think this is really the trap of winning elections.  Everybody does the same thing every time and it never works in the long run.  The Pubs did it in 2010 and now the Dems are doing it and it's an old pattern.  Parties and party members always overestimate the mandate they hold in winning elections, and sometimes mistake their mandate for meaning one thing when it actually means something else.  Politics has just become a sport where everybody puts on their team jerseys and roots only for their side and everything is zero-sum.  But even here, what do you do if your game plan isn't working?  And, besides, nobody can run a country by playing zero-sum.

It's very true that Obama campaigned on the principle of creating a "balanced" long-term budget deal and rebuilding an economic system wherein the wealth of the middle class could grow more robustly than it has in the past 30 years.  I think his winning confirms that the voters at large agree with those basic principles.  But I also think that, as long as the deals you make when in power conform to those principles, the details of how they are met are not a make-or-break proposition.  When making deals, you go for maximum effectiveness, not minimum.

So, here, we would have two alternatives that would fulfill Obama's principled commitments, namely that upper-income earners have to share in the costs associated with getting the nation's economic and budgetary situations rectified, and the middle class has to reap more benefits of the opportunities of these rectifications than they have been.  One alternative for meeting these principles vis-a-vis that tax code is to leave everything else more or less the same but just jack up upper-income tax rates--an alternative which, if carefully considered, doesn't raise that much money and might not have too many other economic benefits.  Another alternative, the personal deductions cap, still hits upper-income earners almost exclusively, and actually will likely raise more money--plus might hold out opportunities for better economic growth, a possibility which also would benefit the middle-class, many of whom are now unemployed.

But then, a lot of what I'm reading above makes it sound like Dems would consider taking the second route an unforgivable "compromise," and compromise is something that necessarily compromises the principles involved.  But in making this judgment, I think people are perhaps not realizing that the second alternative might fulfill the principles that were at stake better than the first alternative.

The reason I refer to 2010 above is that I think Pubs made the error of believing, because of their sweep of the House, that voters were giving their stamp of approval of every item on their agenda and only in the form of the details that were thrown around during the campaign--partly because that's what the voters were promised, surely.  They were bound, of course, not to get everything they wanted in the form that they were demanded, because the Senate and White House were still in Dem hands, and Dems weren't just going to roll over and play dead.  Now, even though Dems have made considerable gains, the House is still in Pub hands, and really, they aren't going to just roll over and play dead either.  If all this pendulum does is hold us in deadlock, then, after two years pass, the voters will just give the sweep to the other side.  In short, I think the voters, predominantly, just want to see things get done, and will reward whoever makes that work--they don't reward people who insist only on one slate of agenda details and then fail to get them all.

There has been a lot of lionization of Bill Clinton among forum Dems in the past few months for being such a good campaigning soldier for Obama.  But I can remember when there was a very great deal of Dem consternation of Clinton during his presidency precisely for all the "triangulating" and "compromising" that he did, and indeed there still is.   But what escapes notice in all of this is the fact that his ability to make deals that benefited the whole country is precisely what made him a good president, and was precisely why he left office with almost stratospheric favorability numbers despite the year and a half of turmoil his personal behavior dragged the country through.  At the moment, it really sounds to me like Dems are in the same mood that Pubs were in 2010--"compromise means the other side doing everything I want." 

The voters have endorsed a set of very basic principles.  There is more than one way to meet them, and some ways are better than others.

[anvi]

shua, I remember Obama talking about two entirely different tax plans in the debates. One was the rate hike, and the other was the need to lower rates for corporations, the latter of which was one of the features of the deal he was hammering out with Boehner--and was also a feature of the Gang of Six plan.  Romney never called him on the contradiction.  But the facts that Obama was negotiating for the rate reduction in exchange for loophole closing deal last time, and that he mentioned it during the race, tells me that he would still be open to such a deal.  What I wonder now is how then Dem Congressional caucus and Dem voters would react if he want for the latter route.   

[anvi]

... Another alternative, the personal deductions cap, still hits upper-income earners almost exclusively, and actually will likely raise more money--plus might hold out opportunities for better economic growth, a possibility which also would benefit the middle-class, many of whom are now unemployed.

When I read the above, my reaction is to ask how the kool aid tastes.
A deduction cap will neither raise more revenue nor create better opportunities for economic growth. 

Whose kool aid?  Regarding economic growth, I was referring to a deduction cap combined with other measures that were in the first Obama-Boehner deal, the Simpson-Bowles commission and Gang of Six plans.  These other measures have had bipartisan support for a while now.  And if deductions caps aren't going to raise more revenue, why is there Tax Policy Center analysis out there that say they will?    

[anvi]

Personally I see no downside to just letting the Bush tax cuts expire completely.

The across-the-board tax cuts are not the only item in the sequester.  If they were, that would be a slightly different debate.  It's the non-defense discretionary cuts that also have the potential of really doing damage to lots of people, education, housing assistance, food inspection, all that stuff.  it's $500 billion in cuts to non-defense discretionary over ten years, and because those cuts are not spread across the whole budget, that's a big hit for all those programs to take, it's a big hit for the people served by them, and it's not the best thing in the world for the economy at large either.

As far as the tax rates go, I'm in favor of upper-tier tax hikes now (there are a number of different ways to do this) and I'd be in complete support of across-the-board tax hikes they are phased over a stretch of time. If the across-the-board hikes are implemented now, even though it doesn't hit individuals all that hard, it would have some impact on demand and that keeps more people out of work for a longer period.  But the cuts in non-defense discretionary spending that come bundled with the sequester are bad news.

[anvi]

What I'm saying, I think what Beet is saying, is, if we're going to raise taxes on upper income earners, and I agree fully that we should, why not do it in a way that raises more revenue?  The "Bush tax cuts" were across-the-board cuts, they lowered the rates for everyone, and if I understand the majority of Dems correctly, they want to keep "Bush tax cuts" in place for 97.5% of the populous.  Why is there such incredible fixation on raising the rates back up if you can get more revenue out of raising taxes on the wealthy by capping deductions?  Given Obama's principles, why does the latter possibility constitute a political loss?

Well, anyway, I'm sure that, if most Dem pressure inside and outside of Congress is for rate hikes, then that will be what's on the table in the negotiations, and we'll either get them or see Congress repeal the sequestration after no deal is reached by January 1st.  But the latter possibility is much more likely, and we'll just keep marching forward without having accomplished anything.  Yay.