Opinion: Editorials

Examiner Editorial: The real cost of Obama's $1.6 trillion tax hike

|
Opinion,Editorial

"If Boehner had made a revenue offer like this out of the gate, it would have been taken more seriously." That's what a Senate Democratic leadership aide told Politico about House Speaker John Boehner's, R-Ohio, latest proposal to avoid the "fiscal cliff." "Coming at this point, when so many in his own party are willing to accept the president's full position on taxes, it's just a half-step," the aide concluded.

Just what is "the president's full position on taxes"? And which Republicans exactly are willing to accept it? Take your time in answering -- only the entire fate of the U.S. economy hangs in the balance.

For the record, a number of Republicans, most notably Sen. Bob Corker, R-Tenn., and Rep. Tom Cole, R-Okla., have urged other members of their party simply to pass a law making the Bush tax rates permanent for 98 percent of all Americans. If no other legislation were signed into law by President Obama, this would mean tax rates would return to President Clinton-era levels for the wealthiest 2 percent of Americans.

And Obama did campaign on that premise. "We're just asking folks like me to go back to the rates we paid under Bill Clinton," Obama said at a campaign stop in Pueblo, Colo., this past August.

Unfortunately, Obama is now pushing for tax hikes far beyond what he sold Americans on the campaign trail. Not only is he asking America's highest earners to pay far more than they did under Clinton, he's asking that they pay almost double. And the economic consequences would be disastrous.

According to the Congressional Budget Office, allowing tax rates to rise to Clinton-era levels for the top 2 percent, as Obama campaigned on, would raise just under $830 billion over 10 years.

Contrast that with Obama's initial offer to House Republicans in the fiscal cliff negotiations, which not only raised rates on the top 2 percent, but also created a new special tax on millionaires and raised more revenue by capping the value of certain deductions and loopholes. The Congressional Budget Office estimated that Obama's real tax plan would raise $1.6 trillion over 10 years.

But the CBO revenue estimates assume that economic behavior is unaffected by tax rate hikes. By law, the CBO must assume that a person who could make $1 million a year would make the exact same decisions regardless of how he was taxed by the federal government. This defies both common sense and reality.

The Heritage Foundation has done a much more realistic analysis of Obama's tax plan that takes into account how higher-income individuals, many of whom are small-business owners, would respond to Obama's $1.6 trillion tax hike.

In short, many of them would invest less in their businesses and hire fewer new employees. By Heritage's reckoning, the Obama tax plan would reduce annual output by $196 billion and annual employment 1.1 million.

Considering how weak economic growth is at the moment, Obama's $1.6 trillion tax hike likely wouldn't even bring in $1.6 trillion. After accounting for its economic effects, Heritage estimates Obama's tax plan would collect only about $700 billion in new revenues, or 44 percent of what Obama hopes to take in.

Boehner may not be Washington's best negotiator, but he is right about one thing. We have a spending problem, not a revenue problem. Until Obama begins to accept some real entitlement reforms, including to Obamacare, he isn't really acting to solve any of the nation's fiscal problems.

View article comments Leave a comment