A taxing debate
Economics is difficult to understand during the best of times. In an election year, it's borderline incomprehensible.
President Obama laid out his campaign tax plan this week, and the gulf between himself and prospective Republican nominee Mitt Romney could not be greater.
They can't even agree on whether Obama's plan represents a tax increase or a tax cut.
Romney argues that Obama's proposal to boost the tax rates paid by higher-income earners (more than $200,000 a year) from 33 percent to 36 percent and from 35 percent to 39.6 percent as of Jan. 1 is an increase because they would be paying more.
Obama contends that not extending the lower rates for higher-income earners would represent a tax cut because even though the higher-income earners would be paying more if rates are increased, they would be paying roughly the same tax rate as they did under President Clinton.
Actually, they would be paying more than they did under Clinton because Obamacare imposes tax hikes on high-income earners.
Details aside, that rhetoric demonstrating the gulf between the two sides might not be all bad because voters will have no trouble differentiating between them.
As campaign themes go, Obama's class-divide theme may well prove to be a winner. But in terms of economics, raising taxes on anyone now would be playing with fire. As President Obama said a couple of years ago when he endorsed the continuation of the Bush-era tax cuts, it's not smart to raise taxes during economic hard times.
Well, hard times continue. The economy is growing at a snail's pace and the unemployment rate stands at 8.2 percent. Sucking more money out of the private economy may be all it takes to push the country back into recession. Is that a risk people feel comfortable taking?
The current debate, however, is a sign of some progress. President Obama wants to continue the Bush-era tax cuts for lower-income earners. Under Bush, those in the 30 percent tax brackets were reduced to 28 percent, those in the 27 percent bracket were dropped to 25 and those in the 15 percent bracket dropped to 10 percent. In addition, the child tax credit was increased from $500 to $1,000 per child and the marriage penalty was reduced.
Given all the talk about tax cuts for the rich, one might have thought that there were no tax cuts for middle- and lower-income earners in the Bush era. But they were there, and Obama extended them once and says he wants to do so again.
The reality, however, is that the chances are small there will be a tax bill passed before the election.
After the election is another story. The Bush-era tax cuts are set to expire on Dec. 31, and they will, at least in some form, be continued. But there's also talk on Capitol Hill of an even bigger tax deal.
For all their disagreements on many issues, there has been movement among Democrats and Republicans toward a bipartisan agreement on a broader tax package — one that would curb deductions and exemptions while lowering rates. That was the gist of a proposal made by the members of Simpson/Bowles fiscal commission that President Obama appointed midway through his term in office.
Obama found it politically convenient to walk away from his own commission after it released its report last year. But things could be different post-election. Whoever wins, there will be an opportunity to simplify the tax code in a way that is good for individuals and business.