The Nuts and Bolts of President Obama's Deficit Reduction Plan

Tuesday, September 20, 2011

Republican critics like Mitch McConnell are calling it "class warfare" and a "massive tax hike" with "phantom savings." The president calls it simply a matter of shared sacrifice. Is Obama's new deficit reduction plan, which he unveiled in a speech Monday morning, a piece of legislation with a legitimate shot of being voted into law or simply a campaign move ahead of the 2012 election? And does the president's math add up when he says the bill is paid for?

Takeaway Washington correspondent Todd Zwillich fact checks the Obama plan.

Comments [6]

listener

"Yes, paid for.. ah..but not quite right away"

Forget John Maynard Keynesian economics. This is J. Wellington Wimpyian economics. "I'll gladly pay you Tuesday for a hamburger today".
We fell for it with stimulus one which is still not paid for so why not roll the saps again?

Sep. 20 2011 10:15 AM
Todd Zwillich from Washington, DC

Ed, I never said that increasing the deficit in the short term for the sake of stimulus and job creation was a "problem". And you're correct in stating that most economists, including the director of the Congressional Budget Office, support the idea of short-term deficits hand-in-hand with long-term debt and deficit reduction. I merely stated a fact: The American Jobs Act, as proposed, is fully paid for in the 10-year budget window but increases the deficit in the near term. Incidentally, the GOP House's Ryan Budget follows this same deficit pattern.

Thanks for listening, and for commenting!

Todd Zwillich
Takeaway Washington Correspondent

Sep. 20 2011 09:42 AM
Ed Resor from Manhattan

Your guest, Tod, misled listeners by implying that having the taxes come after the spending was a problem when almost all economists would say this was an extra benefit during a recession as long as the increased taxes are in the law.

Sep. 20 2011 09:15 AM
Seth from NY, NY

"Nuts and bolts"? I wish Obama the best and agree with his sentiment. The tax code needs to be cleaned up and the result should be higher taxes on the wealthy. But his plan does not suggest how to get there. Tax forms do not include a box labeled "your fair share." Nor do they ask "is the amount in Box 14 higher than the taxes paid by your secretary?" Nor do they say, "Check that you've paid at least as much as average plumber or schoolteacher." These questions are silly but they reflect an implementation of Obama's rhetoric which would amount to a complication of the tax code at a time when we want and need simplification.

Sep. 20 2011 08:56 AM
Richard Bartholomew from Old Greenwich

Class warfare is already built into the existing Tax Code as it has been throughout its history .

The investor class is currently favored over the class of taxpayers who receive their income from wages. In the past we distinguished between the taxation of earned income versus unearned income from dividends and capital gains. The Tax Code used to have a maximum tax on earned income of 50% while the maximum tax on unearned income was 70%.

Republicans who claim that capital gains should be taxed at lower rates than ordinary income ignore the fact that the 1986 Tax Act that was signed by their ideological hero Ronald Reagan eliminated this preferential treatment.
The maximum tax on both types of income was 28%.

In the 1960's an IRS study revealed that some millionaires were able to avoid paying any income taxes because of certain tax preferences. This fact resulted in the Minimum Tax in 1969. This tax eventually became the Alternative Minimum Tax (AMT) with certain major changes. In 1969 the primarily tax preference was capital gains. In the 1986 Tax Act capital gains was dropped from the AMT and replaced with a state and local income taxes. The capital gains was not restored to the AMT when capital gains once again became tax-favored in the 1990's.

What is needed to eliminate the class warfare built into the tax law is to tax all income at the same rate as it was under the 1986 Tax Act.
With a fairer tax system there would be no need for an AMT.

Sep. 20 2011 08:52 AM
Dan Bernard from Seacoast New Hampshire, USA

Bravo. We've needed a tougher tone from Obama for some years now. Only the classless would call his efforts "class warfare."

Sep. 20 2011 08:18 AM

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