President Obama has called for a one year extension of the Bush tax cuts for the "middle class" which he defines as couples making less than $250,000 per year.
He argues that there is agreement between both Democrats and Republicans on this point so that Congress should go ahead and extend the cuts for the "middle class". Of course, by doing this those making over $250,000 will see a significant tax increase next year.
(Note-these tax increases are in addition to the new 3.8% flat Medicare tax on the same taxpayers that is a part of Obamacare on all investment income that is effective 1/1/13. The same taxpayers must also pay an additional .9% Medicare flat tax (beyond what they are already paying right now) on their salaries and wages effective in 2013 that is also a part of Obamacare).
(Note-these tax increases are in addition to the new 3.8% flat Medicare tax on the same taxpayers that is a part of Obamacare on all investment income that is effective 1/1/13. The same taxpayers must also pay an additional .9% Medicare flat tax (beyond what they are already paying right now) on their salaries and wages effective in 2013 that is also a part of Obamacare).
President Obama argues that the Republicans need to compromise on their position that the Bush tax cuts should be extended for all (including the rich) so as to not hold middle class taxpayers hostage.
He has also stated that he is interested in bringing down the federal deficit. Remember how he stated in the 2008 campaign that he was going to cut the deficit in half? Never mind that the deficit was $458 billion in fiscal 2008 and has not been below $1 trillion in any year of his Presidency.
The Republicans also very much agree on the need for deficit reduction. Another point of agreement with President Obama.
I have my own idea about a compromise that the Republicans should offer to President Obama.
- Agree to extend the Bush tax cuts permanently for everyone right now.
- Agree to increase taxes on those making more than $250,000 at the beginning of the first calendar year after the end of the first future fiscal year (ending September 30) in which federal government spending is less than 20% of GDP.
This provides the middle class tax cut everyone wants. This proposal also provides a deficit reduction target that everyone states they want but which no one does anything about. It provides the tax increase on the rich that President Obama wants. However, it also assures the Republicans that the tax increase will only be used to facilitate deficit reduction and not fund greater federal spending.
President Obama states that he merely wants to return the tax rates on the rich to the same as they were in the Clinton Administration. The Republicans should counter that they merely want to return federal spending to the level of spending during the Clinton years (20% or below). This compromise proposal would allow both parties to reach their stated goals.
The chart below shows federal spending by President from Carter to Obama. We are currently spending over 24% of GDP. During the Bush 43 years we were spending about 20% of GDP. In the last four years of the Clinton administration, we were actually below that level of spending each year. That is why a 20% of GDP target seems imminently reasonable as a target.
This chart also should put to rest President Obama's claims that he is a misunderstood fiscal conservative who has been restraining government spending.
I have no doubt that many Republicans will gnash their teeth and howl about this proposal. They are adamantly opposed to any tax increases. I understand and respect their view because every time tax increases and spending reductions are paired together in a so-called "balanced" package the tax increases go into effect immediately and the spending reductions never seem to get implemented. That is why the spending cuts must come first or there will be no tax increases.
A very smart man I worked for used to tell me to play chess rather than checkers when negotiating. In other words, know where the end game is and think three steps ahead of the other guy. The President thinks he is being very clever with his class warfare tax policy. He thinks he can use this simple stratagem to jump ahead in the polls.
He said he wants a middle class tax cut. He's got it.
He said he wants he wants a plan for serious deficit reduction. He's got it.
He said he wants a tax increase on the rich. He's got it.
Pass the bill and send it to him for his signature.
He has two choices.
Checkmate.
President Obama states that he merely wants to return the tax rates on the rich to the same as they were in the Clinton Administration. The Republicans should counter that they merely want to return federal spending to the level of spending during the Clinton years (20% or below). This compromise proposal would allow both parties to reach their stated goals.
The chart below shows federal spending by President from Carter to Obama. We are currently spending over 24% of GDP. During the Bush 43 years we were spending about 20% of GDP. In the last four years of the Clinton administration, we were actually below that level of spending each year. That is why a 20% of GDP target seems imminently reasonable as a target.
This chart also should put to rest President Obama's claims that he is a misunderstood fiscal conservative who has been restraining government spending.
 |
| Source: US News & World Report |
I have no doubt that many Republicans will gnash their teeth and howl about this proposal. They are adamantly opposed to any tax increases. I understand and respect their view because every time tax increases and spending reductions are paired together in a so-called "balanced" package the tax increases go into effect immediately and the spending reductions never seem to get implemented. That is why the spending cuts must come first or there will be no tax increases.
Spending under this proposal would have to be reduced by about 4.3% of GDP before any tax increase could occur on the rich. That is equal to about $700 billion in annual spending. The tax increase on the rich is projected to bring in about $85 billion per year. That means that we would get about $8 of spending reductions for every $1 of tax increases out of this proposal. And the spending reductions would have to come first. There would also be no tax increases now when the economy can ill afford any on the job creators in the economy.
It is time for the Republicans to start playing chess. Give the President what he says he wants.
He said he want to compromise with Republicans in Congress. He's got it.
He said he want to compromise with Republicans in Congress. He's got it.
He said he wants a middle class tax cut. He's got it.
He said he wants he wants a plan for serious deficit reduction. He's got it.
He said he wants a tax increase on the rich. He's got it.
Pass the bill and send it to him for his signature.
He has two choices.
He signs and gives the Republicans what they want ( an extension of the tax cut for all taxpayers) and spending reduction targets as well. The tax increase on the rich would not take effect until spending was substantially reduced. This might be years in the future the way Washington operates.
Or
He vetoes the bill and has to explain why he got everything he says he wanted but would not sign the bill. Who is the real obstructionist in Washington?
No comments:
Post a Comment