President Obama wants to raise taxes on Americans making more than $250,000 per year. He wants to do that by raising the top marginal tax rate from 35 percent to 40 percent. Static estimates show this will raise about $80 billion in revenue annually. Whether that is true cannot be known for sure, because when taxes go up, the people paying them change their behavior to avoid the penalty. So the government may not get all it estimates.
In any case, let's assume $80 billion does roll in. That is about 8 percent of the current $1 trillion deficit the nation is running. In other words, after the tax hike, the U.S. will run a deficit of $920 billion. Some plan.
Of course, there are spending cuts on the table, and those would make the most difference.
Republicans, meanwhile, object to the president's tax plan because they believe it will hurt small businesses that file their taxes as individuals. If businesses pull back from spending and hiring, that is the definition of another recession. And that will hurt government revenues, because it is economic growth that expands federal coffers.
What Republicans have suggested is major tax reform. Lowering rates, broadening the base and eliminating some deductions and loopholes for higher earners. While they would prefer a revenue-neutral plan, it now appears Republicans are willing to compromise, letting tax reform lead to more federal revenue. Democrats should jump at this opportunity. Combined with spending cuts, the federal budget would be healthier.
But Obama insists on raising marginal rates on the wealthy. Why? His approach is not bipartisan and would not even be effective. It would punish people who have money. Could that be his goal?