Taxes are supposed to be complicated and contentious. Yet, speaking from the White House on Monday, it took President Obama less than 15 minutes to make a strong and sensible case for letting the high-end Bush-era tax cuts expire at the end of 2012. Citing well-documented facts, he pointed out that tax cuts at the top have failed to promote economic growth and have blown a hole in the federal budget.
Under his plan, Americans who make more than $250,000 a year — the top 2 percent of taxpayers — would see their tax rates go back up next year to the levels from the Clinton years, while those making less than $250,000 — the remaining 98 percent — would have their tax cuts extended through 2013.
In calling for cooperation from Congress, Mr. Obama said that the point is to “agree to do what we agree on”: extend the middle-class tax cuts. As a matter of fairness and responsible policy making, he said, the majority of Americans, and the broader economy, should not be held hostage again to another debate over the merits of tax cuts for the wealthy.
Unfortunately, it is not a message Congressional Republicans want to hear, committed as they are to preserving tax cuts for the rich at all costs. It is not even what some Democratic leaders want to hear, including Nancy Pelosi, the House minority leader and Senator Charles Schumer of New York, both of whom voiced support on Monday for Mr. Obama’s approach but have advocated in the past for extending the tax cuts for households that earn up to $1 million a year, a level that would please wealthy campaign donors.
But it’s a message that needs to be sent, loud and clear, over and over. There will never be consensus for solving the nation’s budget problems without first ending the lavish tax breaks at the top. In the near term, letting the high-end tax cuts expire would raise much-needed revenue without harming the recovery because tax increases on high-income Americans do not cut into consumer spending nearly as much as middle-class taxes. The revenue that could be raised — about $850 billion over 10 years — would be a significant step toward reducing the deficit and financing programs to spur the economy.
Mr. Obama laid out the broad issues. Now he needs to drive these points home.
THE TAX INCREASES WOULD BE MANAGEABLE Reverting to Clinton-era tax rates for those making more than $250,000 annually would mean increases in the top rates to 36 percent and 39.6 percent from 33 percent and 35 percent currently. It would also mean raising the tax rate on investment income, which is highly concentrated among the wealthy, to 20 percent from 15 percent. No one is being bankrupted or punished. They are being asked to pay more after an extended period of super-low rates. The 15 percent rate on capital gains investment income, for example, is the lowest such rate since the Great Depression.
MILLION-DOLLAR EARNERS DON’T NEED A BREAK Extending the tax cuts to those earning $1 million a year would cost the government $366 billion in lost revenue over 10 years, compared with extending the tax cuts only to those making less than $250,000 a year. That amount would have to be made up by cutting federal spending in critical areas like Medicare, Medicaid, education and food safety.
SMALL BUSINESSES ARE SPARED Republicans argue that letting the high-end tax cuts expire will hit small businesses and impede hiring. That is nonsense, and based on an overly broad definition of “small business,” which counts any taxpayer who reports business income as a business owner, including lawyers and accountants working in partnerships, corporate executives who sit on other firms’ boards and shareholders in “S-corporations,” business organizations that can employ thousands of workers. Using a more reasonable definition of small business — for instance, having income and deductions of less than $10 million — a recent Treasury analysis found that only 2.5 percent of small-business owners would face higher taxes from the expiration of the Bush tax cuts. Of those who would be affected, most are unlikely to reduce hiring or investment because of ample deductions for business expenses.
The strength of Mr. Obama’s argument is unlikely to sway Republicans. But he’s right on fairness and the facts, and will, we hope, prevail in this debate.