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As debt-ceiling standoff approaches, Democrats’ minds on new taxes, of course

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?”

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Laser like focus!

Ellis on January 10, 2013 at 5:12 PM

When aren’t liberals thinking about raising taxes, spending money, redistribution and “social justice”?

gwelf on January 10, 2013 at 5:15 PM

Where are Republican’s minds? I haven’t heard any renewed calls for a balanced budget amendment even though it had majority support the last time it was voted on.

theperfecteconomist on January 10, 2013 at 5:23 PM

I don’t think taxing the value of health benefits should be considered as long as Obamacare mandates the minimum type of coverage we can purchase or restricts our options. We would be forced to pay higher taxes than we would if free to choose our own plans. If they take this route then pressure will build for more free market solutions so people can get the cheapest coverage they need rather than be forced to get what HHS says we need.

I would much prefer my employer paid me the cash value of my coverage and wished me good luck in the marketplace.

Charlemagne on January 10, 2013 at 5:32 PM

In 2008, the Congressional Budget Office estimated that in order to simply pay for then-projected spending, we would have to raise both the corporate tax rate and the top individual tax rate to 88 percent, raise the rate for middle-income workers to 63 percent, and raise the rate for low-income Americans to 25 percent. Given the explosion of spending in the last four years, those rates would have to be even higher today.

Does anyone this side of Paul Krugman believe we can sustain taxes at that level?

That means the only real solution must be on the spending side of the equation. Yet, we must recognize that there is no easy or painless way to cut spending to the degree it needs to be cut. For example, foreign aid amounts to just one percent of federal spending. Federal subsidies to Planned Parenthood and the Corporation for Public Broadcasting amount to a combined two one-hundredths of a percent. Indeed, all domestic discretionary spending this year, after adjusting for the fiscal cliff deal, will total just $628 billion. You could abolish all of it and you would still have a deficit this year of more than $312 billion.

Domestic discretionary spending amounts to 18 percent of all federal spending. Interest on the debt amounts to another 6 percent, but that is essentially untouchable. This leaves defense (19 percent) and entitlement programs, notably Social Security, Medicare, and Medicaid, which consume 46 percent of federal spending. (Another 11 percent goes to other entitlements, homeland security, and a few additional categories.)

That is why it is so disappointing that Republicans are working to undo the sequester for defense spending, while President Obama is keeping entitlement reform off the table. Frankly, there is no way to balance the budget or reduce the debt if 71 percent of the budget (defense plus entitlements plus interest payments) is uncuttable.

Unfortunately, we have been here before. In 2011, we had a fight over the Continuing Resolution funding the government. After a near government shutdown, Congress and the president promised to do something about the deficit and overspending. A few months later, we had a crisis over the debt ceiling. Congress and the president promised to do something about the deficit and overspending. Two weeks ago, we almost fell off the fiscal cliff. Congress and the president promised to do something about the deficit and overspending.

Does anyone see a pattern here?

We are not going to tax our way out of debt. We are not going to grow our way out of debt. And we are not going to get out of debt by trimming “fraud, waste, and abuse.” It’s time to face the fiscal facts.

Resist We Much on January 10, 2013 at 5:35 PM

Nah. Can’t be. We were told during the campaign that this approach didn’t amount to real revenue.

BKeyser on January 10, 2013 at 6:04 PM

All Obama voters need to be audited to make sure they’re paying their Fair Share (TM). And if they’re not, there needs to be jail time.

If that doesn’t raise enough revenue, just tax the unions to make up what’s needed.

malclave on January 10, 2013 at 6:23 PM

President George H. W. Bush in one of the debates way back when he ran against Bill Clinton in 1992 said,

Mr. and Mrs. America, when you hear him say we’re going to tax only the rich, watch your wallet, because his figures don’t add up, and he’s going to sock it right to the middle class taxpayer and lower if he’s going to pay for all the spending programs he’s proposed.

You know, that was back when Bill Clinton was promising a middle-class tax cut by taxing the wealthy.

My, how things have completely failed to change.

(If Bush hadn’t allowed himself to be pushed into raising taxes, he probably would have won that election.)

tom on January 10, 2013 at 6:56 PM