Obama to propose $1.5 trillion in tax hikes

News broke last night that President Barack Obama will propose a $3 trillion deficit reduction plan today, which includes $1.5 trillion in tax hikes. The plan comes at the same time he is proposing more than $460 billion in tax hikes to pay for his last stimulus plan:

President Obama will announce a proposal on Monday to tame the nation’s rocketing federal debt, calling for $1.5 trillion in new revenue as part of a plan to find more than $3 trillion in budget savings over a decade, senior administration officials said.

The proposal draws a sharp contrast with Republicans and amounts more to an opening play in the fall debate over the economy than another attempt to find common ground with the opposing party.
Obama will propose new taxes on the wealthy, a special new tax for millionaires, and eliminating or scaling back a variety of loopholes and deductions, officials say. About half of the tax savings would come from the expiration next year of the George W. Bush administration tax cuts for the wealthy.

The tax hike on millionaires is being called the “Buffett Rule.” But as we’ve noted here before, that new tax hike, as populist as though it may be, will cover only a week of federal spending. And in practice, it hasn’t worked:

Raising taxes on millionaires and billionaires in the U.S. accomplishes little and sometimes nothing. Maryland raised taxes on millionaires in 2008, and so many millionaires left the state that tax revenue from the group didn’t rise as intended, but fell dramatically. New York tried the same thing, after which then-governor David Paterson, a liberal Democrat, said, “I won’t make that mistake again.” He was succeeded by another liberal Democrat, Andrew Cuomo, who faces a huge deficit but strongly opposes renewing the millionaire’s tax.

The reason for these surprising facts is that the U.S. already leans harder on the rich than any other developed nation. Research from the OECD shows that the richest decile pays a higher proportion of the nation’s taxes in the U.S. (45%) than in any of the organization’s 23 other member countries. That top decile also earns a higher proportion of total income in the U.S. (33.5%) than in most other countries, but when you compute the ratios, as the nonpartisan Tax Foundation has done, the U.S. puts the heaviest tax burden on its rich. Trying to extract more from them doesn’t work.

But for a president that wants to bring certainty to the economy and create jobs, Obama is sure intent on pursuing policies that will do exactly the opposite. The Congressional Budget Office pointed out back in June that higher tax rates will reduce the incentive to work, thereby reducing anticipated tax revenues.

Obama has been laying the groundwork for his re-election campaign for the last three weeks, but his problem is that voters don’t trust him. Much of what his administration has pushed has backfired. Yes, the rich — a group that already shoulders a substantial income tax burden (the top 10% of income earners pay almost 70% of all income taxes) — make for an easy target, but the economic problems we face are not due to a lack of taxes.

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