Via HotAir's AllahPundit comes news that President Barack Obama has ruled out extending "the Bush tax cuts" on individuals making over $200,000 and households pulling down over $250,000. I suppose that it also means that Obama is ready to goose the estate tax from its current historic low of 0 percent up to 55 percent on estates worth more than $1 million after all exclusions. AllahPundit notes that former Obama economic advisor Peter Orzag has come out in favor of extending the cuts, which "favor" the wealthiest Americans who just happen to be the most likely to spend money, create jobs, etc.
It is not clear that Mr. Obama can prevail given his own diminished popularity, the tepid economic recovery and the divisions within his party. But by proposing to extend the rates for the 98 percent of households with income below $250,000 for couples and $200,000 for individuals — and insisting that federal income tax rates in 2011 go back to their pre-2001 levels for income above those cutoffs — he intends to cast the issue as a choice between supporting the middle class or giving breaks to the wealthy.
In a speech in Cleveland on Wednesday, Mr. Obama will also make a case for the package of roughly $180 billion in expanded business tax cuts and infrastructure spending disclosed by the White House in bits and pieces over the past few days. He would offset the cost by closing other tax breaks for multinational corporations, oil and gas companies and others.
If taxes for the top tiers go back to their pre-2001 levels, the second-highest rate would jump from 33 percent to 35 percent and the highest rate would go from 36 percent to 39.6 percent. All told, reverting back to the old rates would generate an estimated $70 billion a year while expenditures will be around $3.5 trillion. To put that amount in more perspective, there's over $160 billion in transportation stimulus funds that have yet to be spent. Who do you think would spend the money more efficiently? Bureaucrats pouring concrete or folks who were smart enough or lucky enough to be in the top 2 percent of income earners?
I am no fan of the "rich" (even as I aspire to join their ranks). But this sort of tactic – raising token taxes on the wealthy while coming up with a hodgepodge of sure to be temporary and confusing breaks and funds for "businesses" and "infrastructure" – is exactly the problem. Those sorts of programs create uncertainty that ultimately freezes economic activity. Far better to keep tax rates—and business handouts—simple and stable than to constantly think you can squeeze on this part of the balloon now and this other part later. Obama displays the mentality of someone who thinks he can manage every aspect of every activity, whether it's car manufacturing, housing prices, or credit card fees. The smarter move is to simply create a basic structure and then let people have at it, knowing that the rules are fixed for the forseeable future.
Bonus discussion: The argument for increasing taxes on the wealthiest Americans is often buttressed by the fact that Bill Clinton's tax hikes in 1993 didn't sink economic growth (indeed, the rates that would kick in if the Bush tax cuts are repealed would be the ones imposed by Clinton). It's true that wealthy folks didn't go Galt and disappear in the wake of the tax hikes. But the parallels aren't particularly strong. By 1993, the economy was well into recovery and had been expanding for a couple of years. As important, Clinton was actually cutting discretionary spending in real terms (by over 8 percent in his first four years in office). Anybody who thinks that hiking taxes is the same as back then is off his rocker.
For a full discussion of the Clinton 1993 tax hikes (and 1997 tax cuts, which definitely helped goose the economy), go here.