Barack Obama, cliff diver
The Kansas City Star
This president is a cliff diver. What else can you conclude after his opening gambit on the “fiscal cliff” negotiations? Several days ago, House Speaker John Boehner made the first move and struck a note of compromise: Republicans agree that more revenue must be raised. But it should be raised by closing loopholes and deductions.
That’s hardly earth-shaking. It follows the concept advanced by the president’s own deficit commission, the Simpson-Bowles panel.
What was Obama’s counter? He wants to close loopholes AND raise rates on the highest earners. And apparently nobody in the White House is even considering spending cuts right now, much less reforms to the entitlement programs that drive much of the deficit.
On hearing this, the market concluded that the industrial capital of the United States was suddenly worth a lot less than they thought. The stock market sold off, dropping more than 180 points in one day. The traders reasonably concluded that Obama plans to send the economy over the fiscal cliff of pre-programmed spending cuts and tax increases. He’s going to drive the economy into a recession and put the blame on Republicans.
Obama’s obsession with raising rates is hard to understand when you realize that many of the people he wants to whack don’t HAVE any ordinary income, which is what the personal income tax hits. Warren Buffett’s ordinary income, meaning payroll money, is zero or close to it. You could raise the top rate back to the pre-Reagan level of 70 percent and he’d smile.
Many in the upper brackets live off their capital, not from salary checks. Sure, if current tax rates expire in January, rates for dividends and capital gains would go up, but not as much as for ordinary income.
Obama seems to think there’s not as much revenue oomph in loophole cutting, but it all depends on where you set the hard cap on deductions and credits. If you limit it at $17,000, one number Mitt Romney suggested, it would bring in $1.7 trillion over the next 10 years, according to the Wall Street Journal editorial page (which cited the left-leaning Tax Policy Center).
What’s being missed here is the 900-pound gorilla in the budget equation. That’s economic growth. If the economy gets back to just a normal expansion rate, you’d get a lot more revenue piling into he Treasury. So the first imperative for the budgeteer is “Do no harm.” Don’t lay on taxes that would slow growth.
Cliff diving would make things worse in every way: Less revenue, bigger deficits, ballooning debt, a demoralized country.
Obama should follow the template recommended by his own commission: Carve out loopholes to allow for a lower top rate. The rich would still pay most if not all of that bill, but you’d increase the incentive to earn that extra dollar and buoy the economy.
This president is showing once again that he simply doesn’t understand where economic growth comes from or how to encourage more of it. Right now, it looks as if the next year is going to be very rough.