President Obama is giving Republicans in Congress a tough assignment: If you don’t want marginal tax rates on top earners to go up, bring me an alternative way to raise $1 trillion in revenue without burdening the middle class.
Politically and mathematically speaking, it’s a nearly impossible task. And moreover, Obama said he won’t allow Republicans to use dubious conservative theories about tax cuts, or vague promises of future action, to meet it. But importantly, it’s also a way for him to enter negotiations with House Republicans without appearing to have closed himself off to any compromise.
“What I have told leaders privately as well as publicly is that we can not afford to extend the Bush tax cuts for the wealthy,” he told reporters at his first post-election press conference at the White House. “When it comes to the top two percent what I’m not going to do is extend further a tax cut for folks who don’t need it.”
But Obama hedged ever so slightly, to allow Republicans to figure out an alternative path toward the same revenue goal with the same distributional impact — a task that’s eluded independent tax experts for years.
“It is very difficult to see how you make up that trillion dollars, if we are serious about deficit reduction, just by closing loopholes and deductions,” Obama cautioned. “The math tends not to work.”
In other words, Republicans will have to come up with something new and unexpected if they’re going to avoid higher tax rates on high income Americans.
“I just want to emphasize that I am open to new ideas,” he said in response to a followup question. “If our Republican counterparts or some Democrats have a great idea for raising revenue, maintaining progressivity, and making sure the middle-class is not getting hit, reduces our deficit and encourages growth, I am not just going to slam the door in their face.”
But that’s predicated on Republicans genuinely ponying up real — not illusory — revenue. And he’s under no illusions that it can be done easily without raising tax rates.
“What I will not do, I will not have a process that is vague, that says we are going to sort of, kind of, raise revenue and do dynamic scoring or closing loopholes that have not been identified,” Obama said, referring to supply side theories that suggest cutting tax rates creates enough economic growth to offset revenue losses. “The reason I won’t do that is because I don’t want to find ourselves in a position six months from now or a year from now where, lo and behold, the only way to close the deficit is to sock it to middle-class families…. That is my concern. I am less concerned about red lines, per se.”
Obama was reluctant to boast of having earned a broad governing mandate from the public. But he noted that taxes were the most central issue to his campaign.
“This should not be a surprise to anyone…. The majority of voters agreed with me,” Obama said. “More voters agreed with me on this issue than voted for me.”
His broad pitch to Congress is thus: increase the tax revenue base by modestly raising taxes on the wealthy. Then once that new baseline is set, he’ll negotiate broader tax and spending reforms with party leaders.
“We don’t want the middle-class taxes to go up. Let’s go ahead and lock them in,” Obama said. “Let’s also then commit ourselves to a broader package of deficit reduction. That includes entitlement changes and it includes potential tax reform. As well as I am able to look at discretionary spending on that side. I want a big deal, a comprehensive deal…. But right now I want to make sure of is the taxes on middle-class families don’t go up. And there is a very easy way to do that. We could get it done by next week.”
