What the GOP gets right about Obama’s tax reform plan

Barack ObamaWith median household incomes down by $4,500 since 2007, President Obama has responded with a proposal that would lower taxes on the working and middle classes, giving them additional take-home pay to cover the mortgage, buy food and clothing and cover other expenses. It would also make it easier to pay for higher education.

The tax cuts would be financed by closing loopholes and raising taxes on the wealthy**, who have done quite well in recent years, and by assessing fees on the kind of risky investments by big banks that helped cause the economic meltdown of 2008. That would not only generate new revenue, it would reduce the economic incentive to take such risky gambles.

Obama’s proposal will be the centerpiece of the State of the Union speech that he will give tonight. Not surprisingly, it has drawn a stunned, angry reaction from Washington Republicans. They’ve condemned it as a partisan stunt, an effort to redistribute income and as a means to frustrate their own quite-different plans for tax reform.

Truth is, they’re right: The Obama plan is undoubtedly all three of those things. The administration knows that its plan has no chance of becoming law in a Congress controlled by Republicans. However, it has offered the proposal as a way to create a contrast with tax-reform plans that U.S. Rep. Paul Ryan and others have promised to advance.

That contrast is indeed telling. For several years now, the Republican House has approved tax-reform plans that would cut the tax rate paid by the wealthiest Americans from 39.6 percent to 25 percent. Those plans — drafted by U.S. Rep. Paul Ryan and others — would also cut the top corporate tax rate from 35 percent to 25 percent and eliminate taxes on overseas profits.

However, because Ryan pledges to keep the system revenue-neutral, every dollar in tax reduction for corporations and those in the top brackets would have to be made up by someone else. And who would that “someone else” be?

Got a mirror?

The Tax Policy Center, which analyzed the Ryan proposal, calls it “essentially, an effort to have low- and middle-class households bear the entire burden of closing the fiscal gap and bear the costs of financing an additional tax cut for high income households.”

So what we’ve got is a curious dichotomy, at least as the GOP is attempting to define it:

  • If you propose to lower taxes on the wealthy while raising them on everybody else — if you in effect use the guise of tax reform to redistribute income UP the economic ladder — that is deemed pro-American, patriotic and capitalistic.
  • If you propose to try to raise taxes on the wealthy and lower taxes on the working and middle classes, that form of redistribution is condemned as communistic, unAmerican and unpatriotic.

For those who know their George Orwell, it’s the economic version of the motto “Four legs good, two legs better”. In this case, it’s “Redistribution bad, redistribution upward good”. And it’s both smart policy and smart politics for President Obama to highlight that stark difference in approach and ask the American people which they prefer.

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** For example, under current law, if I had invested $10,000 in Apple 30 years ago and held onto it, the stock would be worth $2.2 million today. If I sell the stock, I would pay a capital gains tax on the $2.19 million.

However, if I were to die still holding those shares, my lucky heirs would inherit that $2.2 million and no capital gains tax would ever be paid on that income. The Obama plan would close what it calls that “trust-fund loophole”.

———————

**** Ryan argues that he can recover the lost revenue not by raising taxes on the working and middle class, but by eliminating tax exemptions and credits in the current system. However,  the Congressional Research Service reports that you’d have to eliminate every one of those exemptions to achieve the rate reductions sought by Ryan, and almost all of those exemptions assist the working and middle classes.

On Table 2, Page 7 of its report, the CRS lists the top 20 such exemptions. The four biggest are:

1.) Today, your employer’s contribution to your health insurance is not considered taxable income. Eliminate that exemption, and anybody who has employer-provided health insurance gets a big tax hike.
2.) Today, your employer’s contribution to your pension fund is not considered taxable. Eliminate that exemption, and anybody who has an employer-provided pension or 401(k) gets a big tax hike.
3.) Today, the interest that you pay on your home mortgage can be deducted from your total income before you pay taxes. Eliminate that deduction, and anybody paying a mortgage gets a big tax hike.
4.) Today, Medicare benefits are not considered taxable income. Eliminate that exemption, and anybody whose health care is paid through Medicare will see a significantly higher tax bill.

Reader Comments 0

424 comments
straker
straker

Middle - "reality did"


Your comments here suggest you and reality have never met.

straker
straker

Middle - "my boss taxed into getting rid of my job"


Did Rush tell you that?

fedup52
fedup52

President have your veto pens ready. 


Also while you are at it throw in a few EAs.


That will keep the HORs running around like squirrels yelling impeach or shut down the guvmint.

InTheMiddle2
InTheMiddle2

@fedup52 If he had any leadership skills he would never need to do either for issues that congress should address.

Fly-On-The-Wall
Fly-On-The-Wall

@InTheMiddle2 @fedup52 So you're saying that the President and Congress can compromise?  I thought compromise was dirty word for conservatives.  I'm sure that they really could compromise but will the conservative base let the Republicans do that?  I'll be happy for some compromise even if it means there are some things I won't like if we can get some other things I do like. 

Sorta how government in our system is designed to work.

straker
straker

Numbers - "conservatives blogging here that are opposed to giving up their tax breaks"


Cons here say.................................stone cold silence.

alexander2
alexander2

@straker How much would YOU like, $17.50... and number man, how much are YOU willing to give and you straker and the common sensewhatever...

InTheMiddle2
InTheMiddle2

@straker I would rather give up a minor tax break than have my boss taxed into getting rid of my job.

LeninTime
LeninTime

Grownups don't need it.  It's called "planning ahead and being responsible".

***

Planning ahead and being responsible reflects a privileged class-specific perspective. Those who are a paycheck or two away from financial ruin -- vast segments of the population -- don't have the luxury.

Numbers_R_Us
Numbers_R_Us

So, I assume there are still no conservatives blogging here that are opposed to giving up their tax breaks in order to fund more tax cuts for the one percent.

gotalife
gotalife

He will not hand the next President that big pile of stinking crap bush and the gop handed him.


He will not hand the next President two losing costly wars and a very costly economic collapse to lose millions of jobs like the gop job killers.


He cleaned up their disasters and they disrespect him like scumbags. He accomplished all short term goals as we return to full employment.


This great President will give us his long term goals and he will accomplish those too.


There is no logical reason to listen to the lying rw that can't get over losing to our different colored President. TWICE. PERIOD..

alexander2
alexander2

@gotalife AND his "line in the sand" might just be a direct vector to ISIS..."thanks for the memmories" Personally, I think he took the right , if a bit too soft approach to the financial crisis, but the ACA and much of the rest of his 2 terms has led to gridlock in D.C. .You may blame the GOP and assuredly they have some responsibility, but this presidents lack of leadership was/is very detrimental to this country . It takes 2 to tango and the GOP and Obama should feel embarassed about the stagnation they have incurred.

LilBarryBailout
LilBarryBailout

The Feds collect more tax revenue now than the last time the budget was balanced.

Revenue is not the problem.

Liberal fascist idiots are the problem.

HeadleyLamar
HeadleyLamar

@LilBarryBailout Revenue is the problem


Ever since we cut taxes on the rich under Reagan we were promised a trickle down


1. It never did.

2. Our debt ballooned. 



Visual_Cortex
Visual_Cortex

way off topic again, but remember how the other week, the topic of paid maternity leave came up?

And a regular here insisted that "grown ups with real jobs already have it?"

I never bothered to check on this assertion, but fortunately 538 has, and:

http://fivethirtyeight.com/datalab/few-new-parents-get-paid-time-off/

nope. Just 12 percent of all American private-sector workers have any kind of paid family leave.

Even for the most generous of the "industries" cited--finance and insurance--only 36% have it.

LeninTime
LeninTime

@LilBarryBailout @Visual_Cortex

Elided in this vision is the class aspect, i.e. the class war aspect.

Ability to plan ahead/be responsible presupposes income in the first place, which is predicated on political struggle.

fedup52
fedup52

@LilBarryBailout @Visual_Cortex  You know accidents happen with birth control devices.  In that case be good planner and terminate the pregnancy.  Is that you are hinting?

LilBarryBailout
LilBarryBailout

@Visual_Cortex

Grownups don't need it.  It's called "planning ahead and being responsible".

Try it.  It works in many areas of life where you might otherwise fail.

Visual_Cortex
Visual_Cortex

@Brosephus @Visual_Cortex

I can handle the mobile goalposts. 

What was really tough was to resist replying to his suggestion that I try "planning ahead and being responsible".

HeadleyLamar
HeadleyLamar

@LeninTime @LilBarryBailout @Visual_Cortex Most people cant plan ahead exactly right


Reminds me of Katrina


People were wondering why a bunch of people who maybe make 10,000 a year stuck around


I mean why didn't they all get in their SUV's and head to their summer homes further north.?

EastCobbRINO
EastCobbRINO

The "good" news from table 2 page 7 of the Ryan budget is that eliminating all those pre-tax deductions from my paycheck will increase my social security benefit. Probably by as much as 10 dollars a month before I factor in the SS cuts due to something known as solvency.

JamVet
JamVet

I'll say this much, the misnamed conservatives sure do revere their banksters and the crimes of the century.

And abhor any who expose their crimes, particularly that woman (h/t Bill Clinton), the junior US Senator from NY.


I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country. ~Thomas "Trickle Up" Jefferson

JamVet
JamVet

State of the Union, huh?

Corporate dominion over everything.

I've seen the five Huskers national championship trophies.

And guess what is plastered all over those three from the nineties?

Sears.

(Dr. Pepper only warranted the Big 12 trophies...)

fedup52
fedup52

@Philo_Farnsworth  Haven't heard of the ruptured pipeline in Montana spilling 50,000 gals of crude and polluted a frozen river.  Really, really smart move.

gotalife
gotalife

The gop will play politics for 8 years focused on saving their jobs.

SFM_Scootter
SFM_Scootter

@gotalife Obviously the Dems weren't trying to save theirs.Or they tried and failed. 

JamVet
JamVet

** For example, under current law, if I had invested $10,000 in Apple 30 years ago and held onto it, the stock would be worth $2.2 million today. If I sell the stock, I would pay a capital gains tax on the $2.19 million.

However, if I were to die still holding those shares, my lucky heirs would inherit that $2.2 million and no capital gains tax would ever be paid on that income. The Obama plan would close what it calls that “trust-fund loophole”.

That's not a bug, its a feature!
Liberty and justice for some...

alexander2
alexander2

@fedup52 @JamVet : so you think that the federal govt has rights to this money which has sat invested in a major corporation so that YOU could have an I-phone. This money provided jobs, etc. Seems to me there is a bit of jealousy here.....Yea, I was DIRT poor and it's just not LIBERTY and JUSTICE for ME if we can't tax this money, and these guys are just WHIPPER/SNAPPERS. and they are really what OPPORTUNITY is all about....Oh well, perhaps it's back to page 3

fedup52
fedup52

@JamVet  $10,000 30 years ago? Man I was a dirt poor going to college.  Jay might as well have said a million.

fedup52
fedup52

@alexander2 @fedup52  You have a mouth full bovine dodo.  In the noodle upstairs there are few connections loose.  You badly need help.

alexander2
alexander2

@fedup52 Bovine dodo, I'm appalled, but truly happy that you felt enough confidence in me to open up and give me your true feelings, sans frontal lobe filters....MOOOOOO...

alexander2
alexander2

@fedup52  you whined, you also whined about your wife... you're a whiner, face up to it, your jealous and a whiner, at least on this blog..hopefully not around people or they would walk away. Thus I'm glad you have a magical place to whine..whine away.. we're here for you....