Mr. Obama's hard line will cheer his left flank, which wants him to drive Republicans into submission on taxes and everything else. Apart from the joy of humiliating the GOP, the calculation seems to be that tax rates don't matter to the economy. So raise rates with impunity, pocket the extra revenue, and only then discuss whether to cut any spending or reform the tax code or entitlements.Well, O will just go after more revenue, taking the tax hikes to lower levels of income. They'll get creative about it, but they'll do it one way or another.
But to what end? Congress's Joint Tax Committee estimates that raising taxes on income over $250,000 ($200,000 if you're single) will raise $823 billion over 10 years on a static revenue basis. That includes all revenue from increases in marginal income tax rates, capital gains, dividends, reinstating the phaseouts of deductions for the wealthy and also treating dividends as ordinary income.
That's only $82 billion a year in extra revenue when the federal deficit in fiscal 2012 was $1.1 trillion. So even if Mr. Obama gets his way, his tax increase would only cut the deficit by about 7.5%. And that assumes the tax increase would have no impact on economic growth. If growth slows below its already paltry pace, tax revenue would rise by less than expected despite the higher rates.
Sunday, November 11, 2012
At the Wall Street Journal, "The President's Tax Bludgeon":