The president’s statement that ‘these tax cuts for the wealthiest Americans are also the tax cuts that are least likely to promote growth’ has no validity unless ‘growth’ is defined as short-run business cycle improvement.
In his remarks on Monday, President Obama reignited the debate about the fate of the 2001 and 2003 tax cuts. The president reiterated his support for letting the high-income rate reductions included in the tax cuts expire at the end of this year, ignoring the economic damage that higher marginal tax rates will do to saving and investment. The president touted raising high-income tax rates as a way to reduce the deficit, even as he reaffirmed his support for more costly middle-class tax cuts and ignored the even more costly growth of entitlement spending.
As he has in the past, President Obama asserted that he is merely calling for high-income taxpayers to "go back to the income tax rates we were paying under Bill Clinton." In reality, though, the president's proposal will leave high-income households facing additional levies that did not exist during the Clinton years. Pursuant to the healthcare law, they will pay a new 3.8 percent Unearned Income Medicare Contribution tax on their interest, dividends, and capital gains, as well as a 0.9-percentage-point increase in the Medicare payroll tax on their wages and self-employment earnings.
President Obama also emphasized that we "can't afford" the high-income rate reductions, labeling them a "major driver" of the deficit. Yet, while highlighting the $850 billion revenue loss from these rate reductions over the next decade, the president reiterated his support for the middle-class portion of the 2001 and 2003 tax cuts, which will cost $2.1 trillion over the same time period. And he said not a word about the relentless growth of Medicare, Medicaid, and Social Security spending, which is the real driver of the long-term fiscal imbalance. Numerous economists and other commentators across the ideological spectrum have recognized that raising taxes on the rich will not be enough, by itself, to close the long-run fiscal gap.
Read the full article at The American website.
Alan Viard is a resident scholar at AEI.