Obama’s Duplicitous Debt Proposal

Robert Robb
Real Clear Politics

President Barack Obama’s debt reduction plan could be titled, The Audacity of Duplicity.

According to Obama, he is proposing $4 trillion in debt reduction over the next 10 years, with there being $2 in spending cuts for every $1 in tax increases.

Where to begin?

Half of the president’s claimed debt reduction comes from policies already in place. Obama says $1 trillion will be saved by winding down the wars in Afghanistanand Iraq. In other words, Obama wants credit for reducing debt that was never going to be incurred.

Another $1 trillion is from the agreement that was reached to increase the debt ceiling. But that agreement didn’t really reduce the debt by $1 trillion. It simply adopted future spending caps that would have that effect. However, there were no new laws adopted that would actually reduce spending. The caps are unenforceable promises to do something unspecific in the future.

Obama is actually only proposing $2.1 trillion in new stuff. Of that, nearly $1.6 trillion is increased taxes. So, he’s actually proposing $3 in tax increases for every $1 in spending cuts.

But that still doesn’t tell the real story. The “spending cuts” aren’t really all spending cuts. They are just things other than tax increases, and there’s over $135 billion in fee increases. Those may be warranted, but they aren’t spending cuts.

So, Obama actually is proposing over $1.7 trillion in additional federal revenue, making the ratio $4 in increased taxes and fees for every $1 in spending cuts.

But that still doesn’t tell the whole story. Obama, of course, is purposing increased stimulus spending now. Net, Obama is only proposing to decrease actual federal spending by about $245 billion over 10 years. So, the real ratio is $7 in increased taxes and fees for every $1 in actual spending cuts.

In short, Obama has proposed a massive tax increase while doing very little to control federal spending.

The bulk of the tax increases, $1.2 trillion, fall on individuals making over $200,000 a year. Supposedly, their tax treatment would only be returned to the levels prevailing during the Clinton prosperity, but that’s another bit of duplicity.

Obama proposes that the top two tax rates be returned to Clinton-era levels, but doesn’t stop there. He would also limit the deductions they take, which wasn’t the case during the Clinton bliss. And his health care bill already socked this group with an increase in payroll taxes of nearly 1 percent on wage income and an investment income tax increase of nearly 4 percent.

In short, Obama is advocating tax rates for those earning more than $200,000 a year much higher than the Clinton-era rates, which Bill Clinton himself described as too high.

This is supposedly so millionaires and billionaires pay their fair share. According to the Tax Policy Center, the top 1 percent of tax filers has 16 percent of the country’s income, but pay 24 percent of all federal taxes and 35 percent of federal individual income taxes.

According to Obama mythology, millionaires and billionaires pay lower tax rates than average Jacks and Jills. According to the Tax Policy Center, the top 1 percent pays 18 percent of their income in federal income taxes. The middle quintile pays less than 3 percent. Those below that actually get more money back than they pay in.

Obama seems really worked up over the fact that investment income is taxed at a lower rate than wage income. But that’s not really the case. Dividends are taxed at the corporate level before they are distributed to individuals, when they are taxed again. Capital gains are taxed on their nominal value, ignoring the effect of intervening inflation.

If Obama were truly interested in a bipartisan down payment on debt reduction, he could have anchored his proposal in the recommendations of his debt commission. The debt commission, however, recommended about half of what Obama proposes in additional federal revenue and raised in a way that lowers rates across the board, including for millionaires and billionaires.

Obama’s interests, however, clearly lie elsewhere.

Read more: http://www.realclearpolitics.com/articles/2011/09/21/obamas_duplicitous_debt_proposal_111411.html