President Obama has played up his tax plan on the campaign trail for weeks. Both the Obama campaign and the White House have couched the plan to partially extend the Bush tax cuts in the language of deficit reduction, tax fairness, and giving certainty to middle-class families. Obama has also used the plan to draw a contrast between himself and Republican Mitt Romney, telling an audience in Oakland, Calif., on Monday, “My opponent’s entire plan, his whole plan for economic renewal, is more tax cuts for the wealthy.”
A White House report on Tuesday warned of the dire consequences should taxes rise on the middle class at the end of the year. But still left unsaid was the reality that Obama’s plan is a stopgap measure designed to delay action until after the November election, when Congress will have to get down to the hard work of taking on the tax code and the nation’s looming fiscal problems.
In Oakland, the president declared that “we can’t reduce [the deficit] without asking folks like me who have been incredibly blessed to give up the tax cuts that we’ve been getting for a decade.” He said he was “going to ask anybody making over $250,000 a year to go back to the tax rates they were paying under Bill Clinton, back when our economy created 23 million new jobs.”
Obama’s end-of-year tax plan has two components: extending for one year the Bush tax cuts for families making less than $250,000, and protecting other middle-class tax breaks tucked into the 2009 stimulus package.
The president’s plan “would provide certainty” to 114 million middle-class families who will see their federal income taxes rise next year if Congress doesn’t act, the White House report said. But although the president’s plan would cushion Americans against a tax hike, it’s hard to argue that it would give families much certainty; it is, after all, only a one-year measure.
The White House report also said that allowing upper-income tax cuts to expire would save $850 billion over the next decade. But Obama isn’t proposing a 10-year fix; he’s proposing a one-year extension. And that number doesn’t take into account spending on the middle-class tax credits the administration wants to extend, including credits for families and students paying for college and credits for low-income families with children.
As both sides square off before Congress's August recess, the rhetoric has outpaced the reality of their proposals, experts say. The Bush tax-cut expiration is “an extremely narrow way to phrase the issue,” said William G. Gale, co-director of the Urban-Brookings Tax Policy Center. He’d rather see a more robust effort to address both the short-term weakness in the economy and the long-term problem of the deficit. But political constraints make that kind of strategic action difficult.
Notably, the White House’s enthusiasm for middle-class tax cuts doesn’t extend to the payroll-tax cut. “That was always intended to be a temporary measure to support job creation and economic growth,” Jason Furman, principal deputy director of the National Economic Council, told reporters on a conference call.
While the payroll-tax cut was intended to be temporary, the American Opportunity Tax Credit, changes to the Earned Income Tax Credit, and similar measures were all intended to be made permanent, Furman said. Tax changes that do things like help families pay for college address “structural issues that aren’t a function of cyclical issues in the economy,” he said.
The Senate is set to vote on Wednesday on the Democratic proposal to extend the Bush tax cuts for middle-class families through 2013, while the House will vote next week on the Republican plan to extend all of the Bush tax cuts for one year. Neither vote is expected to break the partisan stalemate.