At a White House press conference today, President Obama reiterated his campaign argument that any deficit reduction plan must include tax hikes on top earners. “We cannot afford to extend the Bush tax cuts for the wealthy,” he said.
Any lingering debate about the issue was decided by the election. “I argued for a balanced, responsible approach,” the president said. “Part of that included making sure that the wealthiest Americans pay a little bit more. I think every voter out there understood that, that was an important debate, and the majority of voters agreed with me. Not—by the way, more voters agreed with me on this issue than voted for me.”
So is it all settled? Should we expect tax rates to return to Clinton-era rates on family income earned over $250,000 at the end of the year, when the cuts originally passed under President George W. Bush are set to expire?
Don’t bet on it.
Last time the Bush tax cuts were up for debate, Obama similarly insisted that rates had to go up for high earners. They didn’t. Which is why it’s unlikely that we’ll see a return to Clinton-era rates this time around either, despite Obama’s tough rhetoric.
When this came up at the press conference, President Obama didn’t have much of a response. “Two years ago the economy was in a different situation,” he said, suggesting that the economy was still weak enough then that it couldn’t handle a tax hike at all. But is today’s economy recovering much faster? Not really. According to the Bureau of Economic Analysis, the economy grew at an annual rate of 2 percent in the third quarter of this year, following a 1.3 percent GDP increase in the second quarter of 2012. If anything, that’s slightly worse overall than in 2010, which also saw a 2 percent annual growth rate in the third quarter following second quarter growth of 1.7 percent. If keeping all of the Bush tax cuts in place was a good idea then, why is it a bad idea now?
The other argument Obama made was that the numbers left him with no other choice. “I’ve been living with this for a couple of years now. I know the math pretty well,” he said. But raising taxes on top earners doesn’t get you very far toward zeroing out the deficit. Raising taxes back to Clinton-era rates on individual income earned over $200,000 a year and couples earning more than $250,000 nets about $1 trillion in total over the next decade. Obama has already run $1 trillion deficits every single year he’s been in office. Following the president’s most recent budget proposal, debt held by the public would increase by about $8.7 trillion over the next decade—on top of the $10.1 trillion public debt the country is already carrying. This is not exactly a "balanced, responible" plan. Nor is it much of an argument for why we'll see Clinton-era income tax rates return for high earners. We didn't in 2010, and there's no reason to think that we will this year either.