Obama's grand bargain: broaden the base or tax the rich?
If Republicans won鈥檛 budge on raising tax rates but insist on broadening the base, Reich writes, Democrats should take aim at the biggest tax loophole of all for America鈥檚 wealthy: the preference for capital gains.
President Barack Obama gestures as he answers a question during a news conference in the East Room of the White House in Washington, Wednesday. Now that the President has set his goal on $1.6 trillion in additional taxes, Reich writes, the question is whether the rich are going to cough up $1.6 trillion more.
Charles Dharapak/AP
The President says he wants $1.6 trillion in tax hikes. Republicans say they won鈥檛 raise tax rates but might be willing to close some loopholes and limit some deductions and tax credits. Is compromise in the air?
Not a chance. True enough, such 鈥渂ase broadening,鈥� as Republicans like to call it, could conceivably generate $1.6 trillion in additional tax revenues over the next decade.
But, wait. Didn鈥檛 the President just win a second term? The major issue decided in last week鈥檚 election was that the rich should pay more. So, presumably, that $1.6 trillion should come out of the pockets of the wealthiest Americans.
鈥淏roadening the base鈥� has nothing whatever to do with the rich paying more. That鈥檚 because a lot of tax credits and deductions help the middle class and the poor.聽
If we end the Earned Income Tax Credit, for example, some of the poorest Americans will end up sacrificing. That tab was $63 billion last year.
Or if the 鈥渓oophole鈥� is tax-free employee health care, or the home mortgage tax deduction, or tax-deferred 401K accounts, most of the added tax revenues will come out of the pockets of the middle class.
So when Republicans talk about 鈥渂roadening the base,鈥� watch your wallets. Now that the President has set his goal on $1.6 trillion in additional taxes, the question is whether the rich are going to cough up $1.6 trillion more.
There鈥檚 no way that $1.6 trillion can come out of the pockets of the wealthy merely by capping the deductions the wealthy take advantage of.
If Republicans won鈥檛 budge on raising tax rates but insist on broadening the base, Democrats should take aim at the biggest tax loophole of all for America鈥檚 wealthy: the preference for capital gains.
Capital gains are now taxed at only 15 percent (the major reason Mitt Romney pays a rate of under 14 percent on over $20 million of annual income). Capital gains should be taxed the same as ordinary income. That way, under a progressive tax system, the wealthy would pay far more 鈥� on the way to $1.6 trillion.