Democrats seek more tax increases as more fiscal crises near
WASHINGTON — In case you thought there was no risk of your taxes going up again, think again. Washington isn't done with you yet.
Democrats, led by President Barack Obama, want lawmakers to consider a fresh set of tax increases in the next several weeks when they discuss whether to cut spending.
Republicans oppose raising tax rates, especially after they just raised some of them for the first time in two decades in the new year's deal that extended most — but not all — of the expiring Bush tax cuts.
But much of what Obama is talking about is raising tax revenue without actually raising tax rates. In Washington-speak, lawmakers will try to collect more tax money by closing tax loopholes, perhaps limiting popular tax deductions and to some degree changing the way citizens pay into the popular Medicare and Social Security programs.
Democrats say Obama will continue to push for an equal split between revenues and cuts — $1 trillion in new tax revenues and $1 trillion in spending cuts.
"The president believes, as Republicans have said they believe, that we need to reform our tax code, and that there are loopholes that are crying out to be closed that no longer serve the country, if they ever did, and that there are ways of capping deductions and reforming our tax code that can produce more revenue in a fair way that, again, does not burden the middle class, but asks the wealthiest to pay more," White House spokesman Jay Carney said.
Carney declined to discuss specifics, but the New Year's deal fell short of Obama's campaign pledge to raise revenue on the top 2 percent of wage earners, though individuals earning more than $250,000 and couples earning more than $300,000 would still be taxed higher because some of the value of their exemptions and itemized deductions would be phased out.
"He's always said it would require more than that, and that there would be this effort to curtail loopholes and deductions," said Robert Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group. "I don't think we are through with the tax piece, although Republicans think we are. The next couple of months are going to be just horrendously acrimonious."
Raising tax revenues without raising tax rates could take several forms.
One proposal popular with economists is treating some portion of employer-provided health insurance as taxable income on a filer's tax return, an idea proposed by Hillary Clinton and accepted by many Democrats during the 2008 campaign. If a health plan is valued at more than $14,000, for example, the sum above that could be treated as taxable income.
Another idea would be to limit how much mortgage interest, state taxes or charitable giving can be deducted from taxes by high-income earners. The New Year's deal started phasing out some of the tax exemptions claimed by high-income earners and limiting their tax deductions. This could gain in popularity because tax rates remain unchanged and middle-income Americans would not be affected.
A bipartisan presidential commission in 2010 favored scaling back mortgage-interest deductions, in part because they effectively subsidize the wealthy by offering them a bigger discount off a higher tax rate. The problem is that rolling this program back is fraught with risk in today's impaired housing market.
"How do you phase it in? The more you cut back, the more affect it has on the housing market," noted Roberton Williams, a senior fellow at the Tax Policy Center, jointly run by the center-left Brookings Institution and the centrist Urban Institute. "How do you deal with that transition period?"
Republicans insist that any new tax revenue be used not to reduce deficits but rather to lower tax rates and broaden the tax base.
The GOP insists the focus should be on so-called entitlement programs such as Medicare, Medicaid and Social Security.