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Tax VOX

Will Obama's budget raise or lower taxes? Both.

Republicans call Obama an unrepentant tax raiser. The president calls himself a responsible tax cutter who only raises taxes on the rich. Both sides have a point.

By Roberton WilliamsGuest blogger / March 22, 2012

President Barack Obama discusses his oil and gas policies during a visit to a drilling site Wednesday, March 21, 2012 in Maljamar, N.M. Williams argues that Obama's 2013 budget doesnt; really do anything new, but it wouldn't be as financially problematic as Ryan's (AP Photo/Odessa American, Mark Sterkel)

Mark Sterkel/AP/Odessa American

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Republicans like to say President Obama is a chronic, unrepentant tax-raiser. Obama himself used to say he was a tax-cutter but now touts himself as a fiscally responsible steward of the budget who would raise taxes—but only on the rich.

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The Tax Policy Center is a joint venture of the Urban Institute and Brookings Institution. The Center is made up of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government. TaxVox is the Tax Policy Center's tax and budget policy blog.

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Who is right? The Tax Policy Center has just completed its analysis of tax proposals in Obama’s 2013 budget and found they both are. This is no surprise to budget geeks, but important for ordinary people to keep in mind, especially as we head into a season of both budget and campaign madness.

When Obama quietly sent his budget to Congress last month, he started off like the proverbial economist: He assumed the core of his plan was already going to happen. Almost all of the 2001-2010 tax cuts would be made permanent, the alternative minimum tax would be indexed from its 2011 level, and the estate tax would remain at its 2009 level. By itself, that baseline would add $4.5 trillion to the deficit over the next ten years, a pretty deep hole to dig if you want to show your deficit-cutting chops.

From there, the president proposes targeted tax cuts aimed at job creation and helping low-income families combined with substantial tax hikes for the rich and corporations. By the administration’s calculations, more than $2.1 trillion of tax hikes would offset roughly $400 billion of cuts and net about $1.7 trillion in additional revenues. That’s the bottom line Obama wants to hype, but the gain comes only after he gives away $4.5 trillion to get to his baseline.

Compared to the current law baseline, though, where almost all of the temporary tax cuts expire as scheduled at the end of this year, the president’s tax proposals would lose $2.8 trillion over the decade.

And relative to a current policy baseline—essentially this year’s tax rules with the temporary tax cuts still in place—the proposed budget would increase taxes by about $2.1 trillion by 2022. Because current policy would collect somewhat less tax than Obama’s baseline, the net revenue gain would actually be somewhat larger than the $1.7 trillion the budget claims.

By the current policy measure, Obama would raise taxes for about a third of households in 2015 and cut them for about one in six. For most of those who would pay more tax, the increase would be small, mostly just their share of higher business taxes. But almost all of the rich would end up paying a lot more: 98 percent of those in the top 1 percent would face tax increases averaging almost $110,000, primarily because Obama would let the Bush-era tax cuts expire for them.

Much of their tax hike would occur because Obama would raise their top rates to 36 percent and 39.6 percent. But nearly a third results from higher rates on capital gains and dividends and limiting tax savings from itemized deductions and other tax preferences to 28 percent.

However you measure it, Obama budget stands in stark contrast to the fiscal plan proposed yesterday by House Budget Committee Chair Paul Ryan (R-WI). Ryan would cut both individual and corporate tax rates well below today’s levels. He promises to make up the $4.6 trillion of the resulting lost revenue (over ten years, relative to the current policy baseline) by eliminating tax breaks. But he won’t say which ones.

Without the missing revenue raisers, Ryan’s fiscal plan lacks credibility. Obama’s budget lacks imagination and courage. It offers little that’s new and fails to address the country’s long-run fiscal challenges. But at least the president offers a complete package that doesn’t dig a deeper hole than the one we are already in.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on taxvox.taxpolicycenter.org.

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