James Pethokoukis | September 18, 2012, 9:12 am
Image credit: The White House's Office of Management and BudgetOne of these two things has got to give: Either a) the projected future explosion in federal spending is reduced or b) a good chunk of the 47% of Americans who currently pay no income taxes will have to start (or perhaps pay a value-added tax).
Less spending or just about everybody — including the broad middle class — will pay more. Lots more.
That’s the choice. And that is the issue Mitt Romney should be raising.
Why won’t President Obama — unlike Paul Ryan — release a long-term budget plan? Simple. If he did, it would show the only way to realistically pay for the Democratic spending agenda is to eventually raise taxes on pretty much everybody.
See, if you are not going to cut future spending increases and dramatically reform entitlements, raising taxes on just the rich isn’t enough to cover the budget gap. The Buffett Rule is a sham. The Tax Policy Center clearly showed that in a recent tax simulation it conducted:
Instead of trying to balance the budget, we aimed to cut the deficit to a sustainable 2 percent of GDP. And we wouldn’t even start to do the heavy lifting until 2015—to give the country time to regain its economic footing. …So here’s how it might play out: First, Washington raise taxes on wealthy Americans and business. And when those tax hikes don’t supply enough added tax revenue, the politicians then turn to the rest of America and say, “Sorry, we’ve taxed the 1% and business and it still isn’t enough. Now it’s your turn. Let’s talk about what a VAT is …”
What if Congress just raised taxes for high-income taxpayers? Their rates would go up more than 40 percent under current law and more than 150 percent under current policy. In other words, the top tax rate would return to the bad old days of 90 percent. Even if we go for the Administration’s more modest goals—start with current policy and aim for deficits averaging 3 percent of GDP—those top tax rates would have to more than double, taking the top rate over 75 percent.
And our estimates ignore behavioral response. Research has shown that tax increases lead people, particularly at the top of the income distribution, to cut back their taxable income. While analysts disagree on the magnitude of that income shift, they’d all acknowledge that cranking the top rate up to 90 percent would lead to a massive reduction in taxable income and hence a lot less additional revenue than we found. People facing those high tax rates might work less or hire smart accountants.
Here’s former Obama White House budget chief Peter Orszag on why taxes need to go up on the middle class.
In the face of the dueling deficits, the best approach is a compromise: Extend the tax cuts for two years, and then end them altogether. Ideally, only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it. … More troubling, middle-class and lower-class families would be saddled with higher taxes. That’s a legitimate concern, but also a largely unavoidable one if we are to tackle the medium-term fiscal problem.Indeed, Obama has already toyed with the idea of middle-class tax hikes. Here was Obama’s reaction, as recounted in The Escape Artists: How Obama’s Team Fumbled the Recovery, when aides in 2009 pitched him on letting all the Bush tax cuts expire:
He gave no indication that he was troubled by the plan’s most explosive feature: that it would likely break a central campaign promise—not raising taxes on the middle class—one Republicans would surely wrap around his neck with populist glee.Every wonder Obama won’t commit to extending the middle-class Bush tax cuts beyond 2013? It is because he wants them to go away.
The left thinks Americans — and not just the 1% — are undertaxed. The wealthy may get hit first, but the 99% will be next.
