Obama’s “Grand Bargain” Is Deja Vu All Over Again

The “fiscal cliff” melodrama being played out should be creating a sinking feeling of deja vu all over again among Democratic Party leaders, as President Barack Obama continues to pursue a Grand Bargain with Republican House and Senate leaders. Obama is vowing that this time Social Security will not be on the table, as it was in the debt ceiling standoff; however, Obama has also said that all options are on the table.

At least 42 House Democrats have signed a letter to President Obama, strongly urging him to not cut benefits for current recipients of Social Security, Medicare and Medicaid. Senator Patty Murray (D-WA), fresh off her impressive showing in increasing the Democratic majority in the U.S. Senate, has taken an adamant stand against putting any of the three major social programs on the table.

The Republican Party leadership is firmly against any change in tax rates, offering only to close tax loopholes and cut tax preferences, none of which are specified. President Obama has yet to begin making the case for how far short closing tax loopholes and cutting tax preferences would fall from meeting even relatively modest goals for ten-year revenue increases. The Tax Policy Center has calculated that eliminating all of the tax preferences for the wealthy — an extremely unlikely possibility — would reduce the deficit by no more than $1.7 trillion over ten years. If all of the Bush tax cuts were allowed to expire, it would have little or no effect on the 47 percent of households that now pay no federal income tax, and those who now pay relatively modest amounts of federal income tax would not suffer a lifestyle-changing reduction in their federal income tax.

The tax and spend debate is taking place in a small conceptual arena. When President Obama presented his 12-year tax and spending plan, he proposed to raise $1 trillion in additional tax revenue. He now is proposing to raise $1.6 trillion over ten years, however, eliminating the Bush tax cuts for the top two percent of taxpayers would increase revenue by only $800 billion over ten years and Obama does not have any additional tax increases in the works. In addition, Obama proposes to cut the corporate tax rate, which will result in an additional loss of revenue for the national government.

President Barack Obama and the Democratic legislative leadership could have avoided the many problems created by the Bush tax cuts by passing a new tax structure when they controlled the legislative and executive branches of government. I previously proposed a tax rate plan with a top marginal tax rate of 60 percent, which would have taxed earned income more in accordance with the richest taxpayers’ lion’s share of it. If a single payer health insurance plan were financed through the federal income tax, most taxpayers with health insurance would have experienced an annual financial windfall, because their increased taxes would be less than their health insurance premiums, not even counting deductibles and co-pays.

In summary, President Obama’s taxation plans are too small to meet his goal of @1.6 trillion in additional revenue over ten years. Considering that we will continue to run large budgetary deficits for years to come under current projections, $800 billion in new revenue would cover only a quarter of the projected ten-year Pentagon spending of nearly $6.5 trillion.

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