Wednesday, November 14, 2012

Obama can't quite keep it simple

[11/15: several updates at bottom]

In response to the first 'fiscal cliff' question in his press conference today, Obama seemed to shut the door on any alternative to letting the Bush tax cuts for the wealthiest 2% expire -- that is, to raising the top marginal income tax rate. But there was a little sliver of light along the doorjamb, and when Chuck Todd pushed on it, Obama swung the door open.

First, this seemed all but definitive:
QUESTION: You’ve said that the wealthiest must pay more. Would closing loopholes instead of raising rates for them satisfy you?

OBAMA: I think that there are loopholes that can be closed, and we should look at how we can make the process of deductions, the filing process easier, simpler. But when it comes to the top 2 percent, what I’m not going to do is to extend further a tax cut for folks who don’t need it, which would cost close to a trillion dollars.

And it’s very difficult to see how you make up that trillion dollars -- if we’re serious about deficit reduction -- just by closing loopholes and deductions. You know, the math tends not to work. And I think it’s important to establish a basic principle that was debated extensively during the course of this campaign.

OBAMA: I mean, this shouldn’t be a surprise to anybody. This was -- if there was one thing that everybody understood was a big difference between myself and Mr. Romney, it was, when it comes to how we reduce our deficit, I argued for a balanced, responsible approach, and part of that included making sure that the wealthiest Americans pay a little bit more.

I think every voter out there understood that, that was an important debate, and the majority of voters agreed with me. Not -- by the way, more voters agreed with me on this issue than voted for me. So, we’ve got a clear majority of the American people who recognize, if we’re going to be serious about deficit reduction, we’ve got to do it in a balanced way.

The only question now is are we going to hold the middle class hostage in order to go ahead and let that happen? 
 Wiggle, wriggle. Not going to extend a tax cut for the wealthiest 2%, which was a cut to their marginal rates. And, loophole closures won't bring enough revenue.  But, there may be some alternative to simply raising the top marginal rates: 
CHUCK TODD:  And then the follow-up to Jessica’s (ph) question, tax rates. Are you -- is there no deal at the end of the year if tax rates for the top 2 percent aren’t the Clinton tax rates, period? No ifs, ands or buts and any room in negotiating on that specific aspect of the fiscal cliff?

OBAMA: With respect to the tax rates, I -- I just want to emphasize, I am open to new ideas. If the Republican counterparts, or some Democrats, have a great idea for us to raise revenue, maintain progressivity, make sure the middle class isn’t getting hit, reduces our deficit, encourages growth, I’m not going to just slam the door in their face. I want to hear -- I want to hear ideas from everybody.

QUESTION: (OFF-MIKE) red line.

OBAMA: Well look, I believe this is solvable.

I think that fair minded people can come to an agreement that does not cause the economy to go back into recession, that protects middle class families, that focuses on jobs and growth, and reduces our deficit. I’m confident it can be done. My budget frankly doesn’t does it [see anon comment]. I understand that I don’t expect the Republicans simply to adopt my budget. That’s not realistic. So, I recognize we’re going to have to compromise. And, as I said on election night, compromise is hard. And not everybody gets 100 percent of what they want, and not everybody is going to be perfectly happy.

But, what I will not do is to have a process that is vague, that says we’re gonna sort of, kind of raise revenue through dynamic scoring or closing loopholes that have not been identified.
Okay, no vague promise to close unspecified loopholes later, and no credit for revenue imagined to flow from increased growth spurred by rate cuts. That would seem to validate the Times' Jonathan Weisman's claim that "Democrats" (e.g., Kent Conrad) are open to capping all deductions for the wealthy as an alternative to raising marginal rates:
a firm cap of around $35,000 would hit the affluent even harder than Mr. Obama’s proposal, which has previously gotten nowhere in Congress. 
Here's a version floated by Greg Mankiw on Nov. 10:
According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we would raise $749 billion in tax revenue over ten years.  Moreover, according to the TPC's distribution table, 96.2 percent of the extra revenue would come from the top quintile, with 79.9 percent from the top one percent.

This may be the germ of a possible deal between President Obama and Speaker Boehner: The speaker agrees to this tax hike if the president agrees to some fundamental reform of the entitlements, such as gradually but significantly raising the age of eligibility for Social Security and Medicare.
That is basically an updated Alternative Minimum Tax. A version of this approach could be step one in Obama's envisioned two-step process -- a rough equivalent of raising the marginal rates in teh top two brackets to Clinton-era levels.

Via tweet, here's Jonathan Bernstein's reaction to the politics of this alternative
: what if revenues are a piecemeal reform - like, say, Mankiw's deductions cap for the wealthy?
11:36 AM - 12 Nov 12 · Details
Sure. But the closer you get to "reform", the more likely it'll implode. Keep the revenue part simple.


  1. " If the Republican counterparts, or some Democrats, have a great idea for us to raise revenue, maintain progressivity, make sure the middle class isn’t getting hit, reduces our deficit, encourages growth, I’m not going to just slam the door in their face."

    Who believes that the Republicans will come up with an idea that meets this set of criteria? No one in their right minds. Furthermore, if they did come up with something that does, why should the President "slam the door in their faces"?

    I think preemptive whining is the bigger issue here.

  2. No need to publish but the transcript you used has an error. It's not, "My budget frankly doesn’t." but "My budget, frankly, does it."

    1. Thanks, Anon! I noticed that, and then plumb forgot.

  3. I honestly don't believe such loopholes exist to be closed. If they existed, I believe Ryan or one of the Fantastic Four (Hubbard, Haskell, Mankiw, Taylor) would have mentioned it by now. The reason Romney/Ryan refused to name any "loophole" they would close was because there isn't any. All Romney ever did was wave his hands and keep saying, "It works, trust me! I have the math!"

    1. I think there are loopholes to be closed, though not to the amounts needed. I suspect the non-specific nature stems from two problems; first, those loopholes are treasured by the very people Romney/Ryan needed both for votes and funding, and second, closing them means digging into the tax code deeply, and that's likely a gargantuan job that they were not up to doing without the aid and support of the bureaus of government that crunch numbers on that scale.