Obama's Tax Simplification: A Cover For Targeted Tax Hikes?

When President Obama announced his most recent jobs plan in a primetime speech to the joint Congress, he assured America’s legislators that it would be paid for. How? Well, the details would come a little later. Today, in a morning speech on the White House lawn, the president provided the rest of the story, proposing, as Nick Gillespie noted earlier today, about $3 trillion—half spending cuts, half tax hikes—designed to both pay for his jobs plan and provide additional deficit reduction.

Obama pitched his tax hikes, most of which tweak or eliminate existing targeted tax breaks, as a step toward tax reform, and a necessity given ongoing trillion-dollar federal deficits and mounting national debt. “This plan eliminates tax loopholes that primarily go to the wealthiest individuals and corporations,” he said. “We can’t afford these special lower rates for the wealthy...we can’t afford them when we’re running these big deficits.”

But closing those loopholes won't get you very far. According to The Washington Post, “if the goal is debt reduction, that’s not where the money is.” Relatively speaking, there’s not that much to be gained from tweaking loopholes and carve-outs for corporations and high earners:

Broad tax breaks granted to millions of families at all income levels dwarf the corporate giveaways. Over the past two years, largely because of these popular benefits in the federal income tax code, the government has reached a rare milestone in tax collection — it has given away nearly as much as it takes in.

...All told, federal taxpayers last year received $1.08 trillion in credits, deductions and other perks while paying $1.09 trillion in income taxes, according to government estimates.

Only about 8 percent of those benefits went to corporations. (The write-off for corporate jets equals about .03 percent of the total.) The bulk went to private households, primarily upper-middle-class families that Obama has vowed to protect from new taxes.

Obama is actually right that the current tax code is a mess. The American economy would be better off with a simpler system that isn’t riddled with complications and special exceptions. A simpler system would also allow for lower across-the-board rates. But the president's proposal, which merely selects a handful of politically convenient carve-outs for elimination, wouldn’t simplify the system in any way that really matters in the broader scheme of things. If anything, the administration is using the tax code’s complexity to its own advantage, framing targeted tax hikes as a form of tax-code simplification.

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  • ||

    "The American economy would be better off with a simpler system that isn’t riddled with complications and special exceptions."

    Here's a simple idea: Tax consumption, not income.

  • tarran||

    They used to: but during recessions, government revenues used to crash and it was highly regressive. The income tax was introduced in order to reduce the burden on the poor and to give a less volatile source of taxes to the feds.

    Finding a just tax is exactly like trying to find a way to coerce someone into having sex without it being called rape...

  • Lurker||

    What if not every penny of tax revenue wasn't spent during the good times and that extra money could be used to shore-up the bad times?

  • ||

    Some states did that during the last boom.

  • ||

    What if not every penny of tax revenue wasn't spent during the good times and that extra money could be used to shore-up the bad times?

    That's what we need in DC: a giant pool of cash to be managed until it is disbursed.

    By Congress.

    Possibly the one thing that would be worse than deficit financing.

  • 16th amendment||

    This is impossible. They spent excess the social security tax receipts, so what makes you think they could actually create a rainy day fund. Even if they did create one, the temptation to fund this or that liberal program would be too great.

  • MNG||

    The problem with taxing consumption is that every human being has about the same baseline necessary consumption, with many people being close to that baseline, while income varies enormously.

  • MNG||

    Any tax which serves some abstract ideal of fairness at the expense of actual human well being is a stupid one. Taxing those who will suffer the least for the taxing is the best way to go, whether it "punishes success" "encourages consumption rather than noble saving" or whatever.

  • ||

    What if it hurts the economy? Leaving aside the moral question of why the majority has a right to take disproportionately from a minority?

    I wouldn't be in a rush to defend Obama here. Our economy is in real trouble right now, mostly because of an out-of-control government. That's thanks to the activities of both parties. Rather than come up with real solutions or policies, he's playing politics. Revenues aren't our problem, as no amount of revenues that can be extracted from our economy without completely wrecking it would come close to covering the debt or the ever-increasing size of government.

  • adam||

    Everyone might have the same baseline of necessary consumption, but they certainly don't have the same level of actual consumption. And it is actual consumption that would be taxed.

  • ||

    "The problem with taxing consumption is that every human being has about the same baseline necessary consumption, with many people being close to that baseline..."

    So you simply rebate the tax on that baseline amount of necessary
    consumption.

    Problem solved. Got any more objections?

  • Contrarian P||

    Your definition of what is necessary consumption may be (and is) wildly different from what someone else might think is necessary. It's probably not necessary for me to have my thermostat set at 71 degrees right now, but I like it that way and can easily afford it. If my means increase, my standard of living also increases. I drive a much better and more expensive car now than I did fifteen years ago, because I can afford to do so. Do I save more money than I did then? Yes, but I also spend more. Consumption taxes work in states that use them, at least as well as the income tax. They're much less complicated and less prone to fraud. There's no such thing as a completely fair tax, MNG. Still, less complex, easier to understand, without loopholes created by the political class to reward their friends and punish their enemies, sounds much better to me than the reverse, which is the income tax system.

  • ||

    I love the class warfare crap. He knows the GOP is going to kill this, so he wants to have the "helping the rich" talking point. Won't work and doesn't solve any problems. Lovely.

    We do, of course, need real tax reform, but "the rich" finding loopholes aren't the problem, and--loopholes or not--they're already carrying most of the tax burden, anyway. Besides, none of this is even slightly the fault of those whose money was taken and spent (and whose future earnings were also taken and spent). It's the government that needs to feel the pinch, not the taxpayers.

  • MNG||

    I'm not sure that people that have been attacking the 'fat cat' lifestyles of school teachers and autoworkers for the past few years get to complain of Obama's targeting of millionaires as 'class warfare.'

  • ||

    Non sequitur.

  • MNG||

    How is that a non sequiter? The right and others have been decrying the salaries and benefits that union autoworkers and school teachers get for years now, comparing them to non-union and private sector pay and benefits in order to gin up outrage, and saying government should take action to reign that in. Then the same people get all butthurt when Obama proposes higher taxes on the wealthy and cry "class warfare!"

  • ||

    Non compos mentis.

  • T||

    With union autoworkers, the argument was they shouldn't bail out the businesses employing them. I don't recall people saying GM couldn't pay their workers whatever they wanted, just that GM should go bankrupt for making shitty decisions about worker pay.

    With school teachers or other pubsec workers, arguing that conservatives are asking for government action is kind of irrelevant. Who else can reign in government paid salaries and bennies but the .gov?

  • ||

    Obama employs millionaires?

  • ||

    Nitimur in vetitum.

  • MNG||

    Not everyone operates within the framework of the assumptions of your ideology. For libertarians the comparing of pay/benefits of government employees with private sector employees meant to gin up outrage at comparison is different than decrying the wealthy because one is paid by the government (teh stealing!) and the other operate in the beautiful and holy Free Market. But to those not swimming in those assumptions it looks a lot like pitting one class of people against another based on what the former class has, or 'class warfare.'

  • ||

    Cui bono?

  • Mr. FIFY||

    Obama's targeting people who make $200K a year, MNG.

    That, for some fuckin' reason, is the supposed threshold to the He-Man Millionaires' Club.

  • ||

    In Bruce Campbell's book he talks about what a disaster the tax code is for people who get paid in non-standard amounts like him. He'd get crap work for four years straight and then land a decent part in a big budget movie in the fifth year. So his income would be like 20k for four years and 400k in the fifth, and his overall tax rate would be way higher than if he just made 100k every year, even not accounting for the fact that with the more consistently salary you can better plan and get more tax loopholes.

    Fortunately, he's now had steady work for several years on the number one TV show on its network, so he's probably quite well off now.

  • Mr. FIFY||

    He needs to make just ONE more Evil Dead flick... just one.

  • MNG||

    'It's the government that needs to feel the pinch, not the taxpayers."

    The government won't feel any pinch, just the people the government serves. That gets passed on as fast as the costs of regulation do from the producer to the consumer...

  • ||

    just the people the government serves

    Like children! Won't somebody think of the CHILDREN!!

  • MNG||

    Though you may think and speak like a child you are not and the government serves you too capitol l, whether you want to close your eyes to it or not.

  • ||

    Well, if that's what they call service, they aren't getting a tip from me, that's for sure.

  • ||

    No, you're right minge. I don't know where I'd be without the war in Iraq, the war in Afghanistan, the war on terror, the war on drugs, the $trillion bailouts, Obamacare, medicare, medicaid, welfare, social security, the IRS, DEA, FBI, ATF, etc, etc...

    Or did you mean roads? Yes, I will admit to using roads.

  • MNG||

    I'd agree the government spends a lot of money on shit I don't like and don't think helps me (or worse). But it spends a lot on things that do help me too, and the same goes for you. I imagine in addition to roads you cross government made bridges, are protected by police and the military, confidently buy foods and drugs without hours of research on the history and record of each producer of every product you buy, went to a public school, check out books from a library, etc., etc., etc.

  • ||

    Okay, so even if I admitted to needing the government to provide those services, what would that be: like n$500 billion a year?

    If we cut out sprawl producing federal incentives each state could pay for its own highway system. Police are already paid for locally, and without a drug war would cost much less. Military as defense would cost significantly less. I'll throw in the FDA for you as well, even though there could definitely be a private way of testing food and drugs for safety. Public schools could also be paid for and run locally with local taxes(if they want a new football stadium have boosters pay for it). Libraries aren't that expensive and could be paid for with membership dues (exceptions for the poor) and donations.

  • ||

    I don't live on a Federal Road and the the Federal Police don't patrol my neighborhood.

    I'm pretty confident about my food and drugs - and my lawyer would love it Stop & Shop poisoned me.

    When my kids were in public schools, it was paid for by my $1k a month property tax bill. My library is paid for by the county.

    In other words, I need the Federal Government for very little, yet I hand them 1/3 of the money I earn. It's a rotten deal.

  • Lick Boot||

    does that tongue ever get tired?

  • ||

    MNG I imagine you have a mortgage, the market for which has been royally screwed up by money holes otherwise known as Fannie Mae and Freddie Mac, confidently buy foods on a market completely distorted by hundreds of billions worth of farm subsidies, had student loans to pay for tuitions mercillesly and ludicrously inflated by government subsidies, pay into government retirement systems that are bankrupting the entire country, etc etc . . .

  • ||

    The government won't feel any pinch, just the people the government serves.

    Soooooo... Themselves?

  • ||

    You have to be completely delusional to believe that.

  • Greer||

    ...All told, federal taxpayers last year received $1.08 trillion in credits, deductions and other perks...

    I didn't realize taking less of my money was a perk.

  • ||

    You will approach understanding, Grasshopper, when you realize that it was never your money in the first place.

  • Some Guy||

    Getting more money back than you paid in is a perk. Getting money for doing something that the government wants you to is a perk. These things should rightly be eliminated.

  • ||

    Who the hell can keep track?

    In March, I fill out a questionnaire then dump a big pile of W2's and receipts on my tax accountant.

    he figures it all out and tells me what I owe. The system is far too complex it motivate me to do anything other than minimize my reported income.

  • Some Guy||

    Get rid of everything but the standard deduction, medical deductions, and charity deductions. Flatten it down to one or two rates. Set the rates to whatever is revenue neutral based on a the last 3-10 years.

  • ||

    1) Obama talking about closing loopholes has all the gravity of his talk on abuse and fraud.
    2) the state of the economy on his watch is no accident. The man promised transformation change and we are getting it. Liberalism relies on a massively uninformed populace for its survival. That people fell for his brand of hopium speaks to the intelligence of voters.

  • Cy Nickelfuque||

    "The American economy would be better off with a simpler system that isn’t riddled with complications and special exceptions."

    Make it like belonging to a club. You can pay (gov't spending)/(adult population)=$X/yr to receive minimal benefits, more for the privilege of voting, a lot more for a lifetime membership, free for kids, etc. Of course, it'll be like an ambulance/fire club: non-members will be served, but billed ad hoc fees. Further, if $X is "too damn high" slash spending until people are comfortable.

  • MNG||

    I don't see why Suderman doesn't just declare all taxes=TEH STEALING and advocate a system of voluntary organizations with user fees for all involved.

  • cynical||

    Well, given the attitude that all money belongs to the government by default (such that a deduction is "given" to the taxpayer), we may as well respond with hyperbole in kind.

  • ||

    I keep hearing Obama say that he wants millioaires to pay the same as middle classers.

    Doesn't that mean Obama is calling for a... wait for it... flat tax, so that EVERYBODY pays the same?

    CB

  • adam||

    If Obama were proposing that I could the same rate as middle class people, I'd say sign me up. Sadly, he's not. I'm apparently one of those ultra-wealthy people, even though live in a house that's smaller than the one most americans live in, have one high-mileage inexpensive car between myself and my spouse, and rarely take vacations. That's probably because I have to work in a high-cost-of-living city and I had to pay for really expensive schools to make my ultra-high salary.

  • ||

    Does Obama keep track of all the crap he says? Seems like he spews some new nonsense twice a week, then hits the links and forgets all about it.

  • Mainstream Media||

    He doesn't have to keep track, we forget for him and would never dare to use his own words against him.

  • ||

    Why is there even an argument whether the government should be collecting more than 20% of the GDP. Even if that was possible, its horrible about handling the money it gets and prone to acquiesing to political lobbying (which the left even agrees on) so allowing it to take more is rediculous. Simplify the tax system, sure, make sure Buffett can't take those deductions he hates so much, but a solution that takes MORE money out of the market won't work.

  • sarcasmic||

    Let's say I produce product X and charge $100 for it. People like it. They give me $100, I give them the product, we're both happy.
    Over time many members of society have my product and they're all richer for it.

    Meanwhile I also get rich.

    The more people who get rich by enriching society, the richer society becomes.

    I want more rich people (getting rich off the market, not rent seeking or other government interference), not fewer, because that means society as a whole is becoming richer.

  • ||

    Drudge is posting that our pivot-to-jobs, pass-this-bill-now President will introduce his jobs bill (that's right, it has been released yet) . . . .

    Right after his next vacation.

    Its like he wants to lose.

  • ||

    He needs to do some serious thinking....

    ...about his speaking tour career.

  • ||

    Obama has admitted that his quest to raise taxes on the wealthy has nothing to do with deficit reduction. It is about "fairness," even if that means tax revenues do down. The bottom line -- from the dude's own mouth -- is that "at some point you've made enough money." That the media lets him pretend this crap has anything to do with deficit reduction is just another testament to endless Obama shilling we see from the lefty media.

    http://www.taxfoundation.org/blog/show/23137.html

  • Mr. FIFY||

    And those facts get buried in the endless push to demonize anyone who makes more than a hundred grand a year...

  • ||

    the more loopholes the better. Anything that reduces revenue is good.

  • ||

    Whenever I hear some Obamatard going on about removing the Bush tax cuts I always ask them "why do you want to raise taxes on the poor?"

    They then tie themselves into knots trying to explain how raising taxes on the poor AND the rich is a net win somehow for the poor.

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