Negotiations over the “fiscal cliff,” which I wrote about here, will begin soon. President Obama has laid down a single marker: he insists that taxes on “the rich” go up; specifically, that the Bush-era marginal income tax rates be allowed to expire as scheduled under current law on January 1, to be replaced by the rates that prevailed during the Clinton administration. Obama has conveyed the strong impression that canceling these “tax cuts for the rich” will solve the nation’s fiscal problems, and he has specifically urged Congress to preserve the Bush-era tax cuts for everyone else:
Mr. Obama reiterated his demand that the Bush tax cuts expire for the wealthiest individuals, and asked the groups to focus their members on getting Congress, in particular House Republicans, to pass the tax cuts for everyone else.
So let’s do the math. How plausible is Obama’s claim that increasing income taxes on “the rich,” defined by him as families with incomes over $250,000, will get the nation’s fiscal crisis under control?
Currently, the national debt exceeds $16 trillion. In fiscal year 2012, the Obama administration added another $1.1 trillion to that debt. No doubt most people who hear Obama say that his only priority is raising taxes on the rich back to their Clinton-era levels assume that doing this would eliminate a good part, if not all, of our deficit. So what would happen if we returned the top marginal income tax rate from 35% to 39.6%, and the second marginal rate from 33% to 36%, as Obama has proposed? Let’s note first that the top rate kicks in at a taxable income of $388,350 for a married couple, and the 33% rate at $178,650, so we are actually reaching deeper than the $250,000 level that Obama likes to talk about.
The Joint Committee on Taxation has done the math. Raising the top two rates as proposed by Obama would increase revenue by $22.35 billion in FY 2013, assuming that no economic activity is deterred by the higher rates. Which means that higher taxes on the rich, Obama’s only proposal to deal with the nation’s impending fiscal calamity, would cover around 2% of the current federal budget deficit, and would make no contribution at all toward dealing with our $16 trillion debt. So, Barry, what’s your plan for the other 98%? And, hey, how about that debt?