I am not devoting myself full-time to following the iterations of the candidates’ tax plans–as you will soon see, that way lies insanity–but I was interested to see the article by Jason Furman and Austan Goolsbee, Obama’s top economists, in today’s WSJ. It says, among other things, that “the top capital-gains rate for families making more than $250,000 would return to 20%” and that “the tax rate on dividends would also be 20% for families making more than $250,000.” (Both rates are currently 15%.)
Good to have that confirmed. Three weeks ago, the nonpartisan Tax Policy Center (which produces the most authoritative independent appraisals of the campaigns’ fiscal proposals) used new rates of 25%, not 20%, to calculate the numbers most of us have been using lately. It had inferred those tax rates from the Obama campaign’s statements and revenue projections.
The thrust of the Furman/Goolsbee article is that Obama would cut taxes overall relative to current policy, while shifting the burden from people on middle and lower incomes to the rich. Cling to that: it might be true. Unfortunately, although the piece is full of numbers, I don’t see an estimate of that net tax change, a figure of some interest. And the campaign still isn’t saying how much, or even whether, the payroll tax for families on more than $250,000 a year will rise. The campaign says it is considering options in the 2-4% range, worker and employer combined. I don’t know if the effects of that change should be included in the estimate they forget to give of the net tax change. Presumably not, because the article says this bold effort to shore up Social Security would not be activated for a decade or more. That makes two interesting announcements. (Does it also imply a third term for President Obama?)
The article doesn’t say much about spending–except to promise that Obama would cut it, to pay for his net tax cut. Do Democrats realize that Obama is promising to cut public spending overall? This was news to me. The big-ticket item on the spending side, of course, is health care. Obama’s website explains how the costs of his health reform, estimated at a surprisingly modest $50 billion-65 billion a year, will be met: “The Obama plan will realize tremendous savings within the health care system to help finance the plan. The additional revenue needed to fund the up-front investments in technology and to help people who cannot afford health insurance is more than covered by allowing the Bush tax cuts to expire for people making more than $250,000 per year, as they are scheduled to do.” Ah, there you’ve lost me. The tax plan promises a net tax cut. The revenues from taxing the rich more heavily will be more than spent on cutting everybody else’s taxes. There’s no surplus left over to set against the cost of health care reform. There’s a shortfall.
The article also says: “Overall, in an Obama administration, the top 1% of households — people with an average income of $1.6 million per year — would see their average federal income and payroll tax rate increase from 21% today to 24%, less than the 25% these households would have paid under the tax laws of the late 1990s.” I need to find the footnotes for that one. The Tax Policy Center, in tables refreshed today, says that the average federal tax rate on the top 1% of tax units (including business income and the estate tax) would rise by 7.2 percentage points to 35.6% by 2012, fully phased in. That is a hefty rise.
The TPC’s July 23rd document described Obama’s then-proposed tax increases on upper-income earners as “enormous”. But obviously that assessment will need to be updated.