At a campaign stop in Davenport on Wednesday, President Obama again attacked Mitt Romney’s economic plan, labeling his challenger’s proposals a “sketchy deal.”
Obama’s characterization of the plan is based partially on Romney’s outright refusal to fill in the blanks regarding his tax plan and its potential effect on the federal deficit, which ran to nearly $1.1 trillion in fiscal 2012.
A key component of Obama’s plan to reduce the deficit is the expiration of the Bush tax cuts, which are due to expire at the end of 2012, for people making more than $250,000 annually. As a result, the two highest income-tax brackets would return to Clinton-era rates.
The Bush tax cuts — which reduced federal income-tax rates, reduced capital gains and dividend taxes, and phased out the estate tax — favor the wealthy, increase the deficit, and do little to help the economy grow. Obama is right to support their partial expiration.
Between 2004 and 2012, the Bush tax cuts reduced the average federal income-tax burden of people making more than $1 million by $110,000 a year. Overall, the top 1 percent of earners saw their after-tax income go up by nearly $67,000 a year or 6.7 percent; the middle 20 percent of households saw their tax income increase by only $1,000 or 2.8 percent.
In the book Unequal Democracy, Sen. John McCain, one of two Republican senators to oppose the cuts in 2001, is reported as having said at the time that he could not “in good conscious support a tax cut in which so many of the benefits go to the most fortunate among us at the expense of middle-class Americans who most need tax relief.”
Though the Bush tax cuts eased the burden on high-income individuals, they wrought havoc on the finances of the federal government. The Center on Budget and Policy Priorities, using data from the Congressional Budget Office, estimated that between 2001 and 2011, the Bush tax cuts alone added slightly more than $2 trillion to the national debt. No spending cuts were implemented alongside the tax cuts to offset lost revenue, nor did the government shrink.
The Bush tax cuts also upended conventional economic wisdom. According to the Tax Policy Center, the Bush tax cuts had no significant positive impact on corporate investment, small business investment, work incentives, or long-term economic growth.
Romney’s tax plan would compound rather than mitigate the negative effects of the Bush tax cuts. On top of existing policy, he has proposed an across-the-board tax 20 percent reduction in income tax rates. The current top tax bracket — 35 percent — would rise to 39.5 percent under Obama’s plan but fall to 28 percent under Romney’s.
Romney — whose plan also eliminates the alternative minimum tax and taxes on interest, dividends, and capital gains for individuals making less than $200,000 a year — claims that the cost of his additional tax cuts will be offset by the elimination of unspecified tax deductions and increased economic growth. Analysts believe that Romney’s policies would serve only to increase the deficit and debt that Romney himself has pledged to shrink dramatically.
That being said, no approach to reducing the deficit can reasonably leave revenue increases — the expiration of the Bush tax cuts for high-income people, specifically — off the table. Our federal deficit and debt were fed and watered by a set of tax cuts that disproportionately favored the wealthy; to suggest that the best path forward is to keep the same policies in place while Washington looks to cut spending on programs that disproportionately benefit average Americans is abhorrent.
