The debate over the so-called “fiscal cliff” has already lowered future revenue projections to the point where they will have limited impact on the accumulated deficit. Once more, President Obama has broken his pledge to take Social Security off the table by signaling his willingness to change the Consumer Price Index (CPI) formula to lower future benefit payments.
House Speaker John Boehner’s(R-OH) proposal to increase the tax rate for only those with earned income of over $1 million is silent on whether he would allow tax rates on capital gains and dividends to revert back to pre-Bush tax cuts. If he does not, his tax plan could generate as little as $250 billion over ten yeara.
For his part, President Obama, after insisting that the top two percent of taxpayers must pay more, has lowered the affected taxpayers to the top one percent by proposing to increase the top tax rate only for those earning $400,000 or more. The Tax Policy Center had calculated that raising the tax rates on the top two percent of taxpayers would raise revenue by $442 billion over 10 years. As is the case with Speaker Boehner’s proposal, it is not clear if Obama would allow capital gains and dividend tax rates to revert back to the higher pre-Bush tax rate levels. In any case, Obama’s new proposal would raise well under the $442 billion projected from his original proposal.
As for Obama’s agreement to accept a reduction in the Social Security CPI formula, it would not lead to any immediate revenue increase; it would reduce future benefits for those most dependent on Social Security; and it would not have much impact on Social Security trust fund shortfalls, projected to hit in the early 2030s.
Looking back to when the Democrats controlled the legislative and executive branches of government, a wiser Democratic leadership would have let the Bush tax cuts expire on their sunset date and substituted for them a more robust progressive tax rate structure, in which the top marginal tax rate would have been 60 to 70 percent. In the first three decades following World War II, the top marginal tax rate was never below 70.45 percent, yet that was a time of enormous economic prosperity. Also, given the fact that a majority of the income in the United States is earned by the top five percent of taxpayers, a higher tax rate structure would more fairly tax the incomes of those who earn the lion’s share of it.