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.
The New
Year’s deal raised income tax rates for individuals’ taxable income
above $400,000 and family income above $450,000. That’s less than 1
percent of all U.S. taxpayers. The deal is projected to raise about $600
billion over 10 years, not enough to significantly chip away at
deficits that still will total more than $6.8 trillion over the same
period. Lawmakers on Capitol Hill will be looking to trim $2 trillion
over 10 years from projected future deficits as part of any deal to
raise the nation’s debt ceiling by the end of February and prevent $109
billion in deep spending cuts from occurring in March.
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 effect 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.
Senate Minority Leader Mitch
McConnell, R-Ky., said this week that reining in spending – and not
raising taxes – will be the crux of the upcoming fiscal debates.
“The
tax issue is behind us,” McConnell told ABC News. “Now, the question is
what are we going to do about the real problem. . . . Now it’s time to
pivot and turn to the real issue, which is our spending addiction.”
Federal
spending on health care – namely Medicare and Medicaid – threatens to
swamp the entire budget over coming decades. Baby boomers, born between
1946 and 1964, are starting to retire and will strain federal coffers
over the next several decades.
But tweaking these programs, along
with Social Security, angers older Americans, who are more politically
involved than younger generations. AARP, the lobby for seniors, helped
beat back a GOP proposal in late December to change the way
cost-of-living adjustments are made for Social Security benefits.
Sen.
Bob Corker, R-Tenn., plans to reintroduce the idea in a forthcoming
bill.
The coming negotiations on the spending side won’t exactly amount to starting from scratch.
During
a series of negotiations in the fall between Obama and House Speaker
John Boehner, R-Ohio – which eventually failed – the president proposed
$1.2 trillion in spending reductions while Boehner offered $1 trillion.
The two sides found common ground on spending.
Read more here: http://www.mcclatchydc.com/2013/01/09/179447/as-new-fiscal-crises-near-democrats.html#storylink=cpy
