JONATHAN COHN JULY 27, 2011
Few arguments seem to bother conservatives more these days than the suggestion that we could spare student loans and other valuable government programs by raising taxes on the very wealthy.
On Tuesday, for example, Washington Post blogger Jennifer Rubin noted that the corporate jet loophole, which President Obama and Democrats are constantly decrying, costs the U.S. Treasury a mere $3 billion over the next ten years. Pell Grants, by contrast, will cost more than ten times that amount in the next year alone. Argues Rubin:
The Democrats’ constant refrain is that if we’d tax billionaires and slash defense, we’d solve our fiscal problems … we can’t solve the debt by taxing corporate jet owners. We can’t (even if we wanted to) eliminate the entire Pentagon budget and get anywhere need the cuts we would need. We look to domestic discretionary and entitlement spending because, as Willie Sutton is often quoted as having said of banks, that’s where the money is. And the president should be honest enough to drop the apples-to-oranges nonsense and put forth his own, concrete plan that moves toward paying down our debt.
Believe it or not, I am a little sympathetic to Rubin’s argument here. Plenty of Democrats, including President Obama, have exaggerated the impact of repealing only the Bush taxes that apply to higher incomes. If we want to preserve the program integrity of Medicare, Medicaid, and Social Security, we are going to need more revenue than those tax cuts alone represent. That’s why some of us have long argued that we should let all of the Bush tax cuts, even those that apply to lower incomes, to expire once the economy has stabilized.
But if it’s an exaggeration to suggest that higher taxes on the wealthy will take care of the deficit, it’s a gross exaggeration to suggest, as Rubin and other conservatives do, that higher taxes on higher incomes can’t reduce deficits significantly.
Start with those upper income Bush tax cuts. Allowing them to expire after 2012 would generate around $800 billion in revenue, depending on how you count. Closing loopholes that primarily affect the very wealthy would add to this total, albeit incrementally. Partly eliminating the infamous “carried interest” provision, which allows hedge fund managers to pay low rates on most of their incomes, would generate around $15 billion, or maybe even more. And that's just one loophole. If we were willing to talk about new taxes on the wealthy, like limiting their itemized deductions, or new taxes on oil companies and other businesses, we could get more revenue still. Economist Jared Bernstein, formerly of the Obama Administration and now of the Center on Budget and Policy Priorities, detailed some of these on his blog not too long ago.
Put it all together and it's easy to generate revenue in excess of $1 trillion. That works out to about a half percentage point of gross domestic product. And if that doesn't sound significant to you, think of it this way: That's $1 trillion in cuts to government programs we wouldn't have to make.
Which isn't to say those programs wouldn't, or shouldn't, get cuts. But that’s where Rubin and her allies make another error. It’s simply not the case that Obama and the Democrats have not offered to do those things. As numerous outlets (including this one) have reported, Obama last week offered House Speaker John Boehner a $4 trillion deficit deal comprised primarily of spending cuts. Senate Majority Leader Harry Reid’s proposal, which Obama has endorsed, would start with more than $1 trillion in cuts from discretionary spending. And lest everybody forget, it was Obama and the Democrats who enacted hundreds of billions of dollars in Medicare reductions, as part of the Affordable Care Act.
Are there other reasons to oppose raising taxes on the wealthy? Sure. You could argue it will slow the economy or that it's simply unfair. But evidence for the former position is thin and the popular support for the latter is even thinner. I presume that's why conservatives spend so much time trying to convince us that taxes on the wealthy simply wouldn't have an impact.