Big question: How, not whether, to raise taxes

By Ezra Klein

Originally Published in:  The Washington Post

Here’s the difference an election makes: The decisive question in American politics has moved from “should we increase taxes?” to “how will we increase taxes?”

The GOP’s position is clear: “What matters is where the increased revenue comes from, and what type of reform comes with it,” Speaker John Boehner said last week. “Does the increased revenue come from government taking a larger share of what the American people earn through higher tax rates? Or does it come as the byproduct of a growing economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes, and lower rates for all?”

In other words: Revenues are on the table, but only if they can be achieved without increasing tax rates. So: Raising taxes by letting the Bush tax cuts expire for income over $250,000? No go, as that tax hike increases the top rate from 35 percent to 39.6 percent. But raising taxes by, say, limiting the rich to $17,000 in deductions? That might be on the table.

In his press conference today, President Obama also made his position clear: “There are loopholes that can be closed and we should look at how we can make the filing process easier, simpler,” he said in his press conference today. “But when it comes to the top 2 percent, what I’m not going to do is extend further a tax cut for folks who don’t need it that costs close to a trillion dollars. And it’s very difficult, if you’re serious about the numbers, to see how we make up that trillion dollars by closing loopholes. The math doesn’t add up.”

In other words: The top tax rate is going up. That’s not, Obama says, because he wants the top tax rate to go up. It’s because raising the top tax rate is the only realistic way to get the revenue.

The president portrays this as a matter of math. But it’s not a matter of math. According to the Tax Policy Center, capping deductions at $17,000 would raise about $1 trillion from people making more than $200,000. Eliminating all itemized deductions would raise about $1.2 trillion.

White House officials don’t buy that math, exactly. They think it will raise rather less when the Joint Tax Committee — the folks who officially score tax policies in Congress — takes a look at it. Moreover, they don’t think it’s a realistic policy. It would mean, in effect, wiping out the charitable deduction for richer Americans, which could devastate the philanthropic sector. It would mean largely wiping out the mortgage-interest deduction for richer Americans, which would deal a serious blow to the housing market. In addition to being politically impossible, all that is arguably economically unwise.

“I’m open to new ideas if Republicans or Democrats have some great new idea that raises revenue, maintains progressivity, makes sure the middle class isn’t getting hit, and encourages growth,” Obama said. “What I will not do is have a process that is vague that says we will sort-of, kind-of raise revenue through dynamic scoring or by closing loopholes that have not been identified.”

The White House’s position, in other words, is that if Republicans want to raise revenue while holding down rates by reforming the tax code, they have to show how they’re going to do it, prove that they’re willing to take the heat, and let it get scored by the Joint Tax Committee. If not, then tax rates are going up, either because Congress agrees to decouple the tax cuts for income under $250,000 from the tax cuts for income over $250,000, or because we’ve hit the deadline without an agreement and all the tax cuts have expired, raising taxes on everybody.

 

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