THE PLANK FEBRUARY 22, 2009
On Friday I argued that, while the president's push to make his budget honest and transparent was great public policy, it wasn't quite as courageous as the White House suggested. But there is one element of Obama's first budget that strikes me as genuinely courageous. According to today's Times:
The president will propose to tax the investment income of hedge fund and private equity partners at ordinary income tax rates, which are now as high as 35 percent and could return to 39.6 percent under his plans, instead of at the capital gains rate, which is 15 percent at most.
Senior Democrats in Congress joined with Republicans in 2007 to oppose that increase. But with Wall Street discredited and lucrative executive compensation a political target, the provision could prove more popular among lawmakers.
Now it's true, as the Times notes, that Wall Street is a fat target these days. On the other hand, lots of Obama's top supporters manage money and benefit from the loophole that lets them classify income as capital gains. I wasn't sure Obama had it in him to close the loophole and am delighted to see that he might. (We'll obviously have to wait and see if he fights for the measure, and if Congress signs on. But it's a good start.)
Semi-relatedly, much has been made of Obama's decision to honestly account for the Alternative Minimum Tax, which increasingly affects upper-middle-class people because the criteria haven't been adjusted for inflation. George W. Bush made a habit of claiming this revenue in his annual budget, even though Congress exempts the AMT's upper-middle-class payers every year. Obama's budget concedes the obvious: that the AMT revenue won't materialize.
For what it's worth, I totally agree with this decision. But, if you're not counting AMT revenue in your budget because Congress always eliminates it, why would you count the exemption as part of the stimulus bill? As it stands, the AMT accounts for $70 billion of the stimulus bill's $787 billion cost. If, as Obama concedes in his budget, that $70 billion tax exemption was going to happen anyway, how can it be considered stimulus, which implies money above and beyond what would have been spent?
Update: Just to be clear, I'm not blaming Obama for including AMT relief in the stimulus legislation, as one commenter suggests. It was a Republican idea and Democrats felt they had to compromise on it. I'm just saying we should be honest about the size and likely impact of the stimulus, which, right of the bat, js $70 billion less than it appears.