Thursday, February 26, 2009

Obama To Propose Tax Increases

We discussed only yesterday David Leonhardt's article for the NY Times, in which it becomes clear that taxes will have to rise if government is to continue providing social services that Americans have become accustomed to. In that vein, the Obama administration will propose reducing the value of itemized deductions for taxpayers in top brackets, raising revenue for the government for things like major health care reform:

The president will also propose, in the 10-year budget he is to release Thursday, to use revenues from the centerpiece of his environmental policy — a plan under which companies must buy permits to exceed pollution emission caps — to pay for an extension of a two-year tax credit that benefits low-wage and middle-income people.

The combined effect of the two revenue-raising proposals, on top of Mr. Obama’s existing plan to roll back the Bush-era income tax reductions on households with income exceeding $250,000 a year, would be a pronounced move to redistribute wealth by reimposing a larger share of the tax burden on corporations and the most affluent taxpayers.

Administration officials said Mr. Obama would propose to reduce the value of itemized tax deductions for everyone in the top income tax bracket, 35 percent, and many of those in the 33 percent bracket — roughly speaking, starting at $250,000 in annual income for a married couple.

Under existing law, the tax benefit of itemizing deductions rises with a taxpayer’s marginal tax bracket (the bracket that applies to the last dollar of income). For example, $10,000 in itemized deductions reduces tax liability by $3,500 for someone in the 35 percent bracket.

This is sort of a backhanded way of raising taxes, but whatever. Of course, Republicans will oppose it:

“Everyone agrees that all Americans deserve access to affordable health care,” Mr. Boehner said in a statement, “but is increasing taxes during an economic recession, especially on small businesses, the right way to accomplish that goal?”

So Republicans will continue to adhere to the "if the economy is good, cut taxes; if the economy is bad, cut taxes" philosophy. That's fine. Increasing taxes is a hard sell, but I think it'll get done. That is, if people can be persuaded that such is the cost of the things they want government to provide.

UPDATE: This Bloomberg article breaks down the costs of health care reform and the revenue produced by tax increases in greater detail. It also makes it clear that these tax increases won't be enough, and that more are certainly on the way if we have any hope of successfully completing a reform program and cutting what is projected to be a $1.75 trillion deficit.

UPDATE II: About that cap-and-trade program, Rep. Chris Van Hollen, a Democrat from Maryland, has a different idea; take the revenue from permit and give it back to Americans in the form of a dividend. I seriously doubt this proposal will go anywhere, but interesting nonetheless. Generally though I favor the government using the money in aggregate on social programs, rather than me using a monthly check to go out to dinner somewhere.

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