Friday, December 28, 2012

It Bears Repeating: President Obama's Plan Would Not Raise Anyone's Taxes Beyond What They Would Be By Default After Jan. 1, 2013

As Richard Posner pointed this past week (see here), a massive tax increase on virtually all Americans is set to go into effect this January 1, by operation of law, when the Bush tax cuts automatically expire, along with payroll savings tax reductions that were enacted as part of the Obama Administration's economic stimulus package. Therefore, it makes little sense to argue, as many Republicans are, that the Obama Administration's plan for averting the so-called "fiscal cliff" involves a tax increase on the wealthiest Americans.

The President's plan to avert the "fiscal cliff" would not raise taxes on anyone as against the default (automatic expiration of the Bush tax cuts and various other tax deductions and benefits), but would merely reinstate tax cuts and deductions for the vast majority of taxpayers, families earning less than $400,000 or $250,000 (depending on which Obama plan is enacted). Those who earn more would not receive a new (or renewed) tax deduction; their taxes would be approximately the same the default, i.e., if Congress and the President do not agree a plan to avoid the "fiscal cliff." Their taxes are scheduled to go up by operation of laws enacted by both Republicans and Democrats that set expiration dates for the Bush tax cuts. They will not be raised by virtue of any agreement Republicans and the President might now hammer out. The real source of the disagreement is that the Republicans want the tax cuts for the wealthy renewed (and made permanent). The president opposes renewed tax cuts for the wealthy. It is inaccurate to characterize his position as promoting a tax increase. Again, their taxes are going up (along with everyone else's) even in the absence of agreement.

We need to get beyond the false tax-increase rhetoric and focus on what the actual fiscal cliff negotiations are really about. They are not about raising taxes (above what they otherwise will be) on  anyone. Rather, they are about avoiding (a) raising taxes on those who can least afford the hit, and (b) the depression (not recession, depression) that likely would ensue from a combination of across-the-board tax increases (currently slated to take effect) and the kind of fiscal austerity measures that have completely obstructed economic recovery in Europe.

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