President Obama has said he will not sign any deal to avert the so-called fiscal cliff that does not raise tax rates for the top 2% of wage earners. Polls suggest his position has support which might help explain the willingness by several Republicans to go along.
However, this "balanced approach" as it's being called, will raise very little revenue. Ending the Bush tax cuts on the top 2% will bring in $42 billion, yet the federal budget deficit for the 2011 fiscal year alone was $1.3 trillion. Consequently, the President desires to follow up with another tax on the rich colloquially known as the Buffett Tax. But as Mark Steyn pointed out yesterday the Buffett Tax would raise about $3.2 billion, forcing us to impose this tax for the next 514 years merely to cover the 2011 deficit.
These schemes to tax the rich, while popular, are mere drops is the vast sea of federal spending, yet if these tax increases are miniscule in the grand scheme of things, why is the President so adamant about enacting them? And, why should the Republicans oppose them?
There are a number of non-political reasons to be concerned by the President's proposal: Roosevelt too raised taxes after reelection and it made matters worse, concern for the future is a big factor in many top businesses indicating they will curtail capital expenditures this year or next, and a study suggests these tax the rich schemes will cost 710,000 jobs.
President Obama is a highly skilled politician. He has successfully convinced the American people the wealthy are not paying their fair share. Never-mind the top 1% of earners generate almost 37% of all income tax revenue while the bottom 50% generate 2%. By getting the public on his side, the President has put the Republicans in a serious bind: Oppose these tax hikes and suffer politically with the general public by being blamed for sending us over the fiscal cliff or support his plans and set off a civil war within your own party. In addition to causing a GOP civil war, should Republicans go along with tax hikes, future tax increases will be harder to fight against politically. This scenario is win-win-win for the President unless Republicans can find a better way.
Republican leaders are indeed trying to chart a different course. Speaker John Boehner during a press conference immediately after the Presidential Election stated that Republicans would favor closing tax loopholes and lowering rates as part of a deal rather than raising tax rates. Erskine Bowles, of the famous Simpson-Bowles Commission will visit Capital Hill tomorrow to talk with senior Republicans. Some view the Commission's plans as being in line with Republican principals:
That plan called for $800 billion in fresh revenue through an overhaul of the tax code and significant spending cuts, including major changes to Medicare and other federal health programs.
Closing tax loopholes is something I view as being in line with Republican principals, and something we should fight for and Grover Norquist should support. As a party we have all too often allowed ourselves to be painted as the party of insiders and big business. They are the ones who by in large benefit from these tax loopholes, not small businesses and not middle income taxpayers. The GOP should seize on this and make it their line in the sand: Get rid of loopholes and lower tax rates for everyone.
No matter the result of negotiations between the White House and Congress, I hope this group of Republicans remembers the lesson Georgia H.W. Bush learned the hard way: don't accept tax increases for promises of future cuts. That was the worst of both worlds.