Congressional Republicans, clearly fearing not the fate of a Jon Stewart tongue-lashing for hypocrisy, have decided on their talking point against President Barack Obama's proposed changes to the tax code. The payroll tax cuts Obama has proposed are bad, says the party of tax cuts, because there's no way they'll be permanent. Once lowered, taxes will inevitably rise back up again. From that certainty about future tax cuts will come uncertainty in the present: businesses don't know when, where or how their taxes will rise again, and thus will not take the risk of adding new employees now.
So goes the dissatisfaction with Obama's cuts. The president's jobs bill has provided just as much ammunition to critics in the way it raises taxes, too. For one, the threshold at which taxes begin to rise could be too low, argues Karen Hube of the Fiscal Times. In proposing his jobs plan, Obama cited Warren Buffett's oft-repeated observation that he pays taxes at a lower rate than his secretary. Could it be, Hube asks, that Obama is actually asking more of the secretarial class than he is of Buffett.
The jobs plan calls for a hike in the rate of tax on carried interest, setting up a certain fight with hedge fund managers and others investors who now take their income as interest, to take advantage of the current 15 percent rate. But it also caps itemized deductions for individuals making $200,000 or more, an income level that Hube and others say may be low enough to qualify as the middle class Obama wants to protect. And simply raising the tax rate on carried interest -- as if passing that hike would be simple -- will not reverse the perverse tax situation Buffett identified, Hube argues. Obama's proposal "doesn’t impose nearly enough of an additional tax buden on the likes of Buffett, Bill Gates and Mark Zuckerberg, even though those financial titans and others have said they would be willing to pay more."
Capping itemized deductions is just a “partial step” toward wringing out the inequities in the Byzantine federal tax code, says Chuck Marr, director of federal tax at the Center for Budget and Policy Priorities in Washington.
The Obama proposal doesn’t address the major reason for the kind of tax inequity that exists between Buffet and his secretary: the preferential tax treatment of capital gains and dividends. The tax rate on dividends and long term capital gains is 15 percent, while the top income tax rate is 35 percent.
The super-wealthy can easily cut their effective tax rates to half of the 35 percent income tax rate by drawing modest incomes and using their long-term gains to live on, according to Marr.
In Forbes, Peter J. Reilly writes that Obama is thus hurting not Warren Buffett but Jennifer Aniston. (An outraged nation will surely not abide that.)
And the president is courting trouble with his Democratic base, too, especially in proposing that wealthy earners' health care benefits be taxed, as income. A similar funding mechanism was included in Senate versions of the administration's health care reform, but was stripped out after House Democrats and labor leaders objected that many of those who'd be hit by the tax were those who had negotiated for better healthcare benefits in lieu of years' worth of larger salary raises. Those same legislators will not be happy with Obama's attempt to revive that proposal.
"I didn't support taxing health-care plans when we debated the health-care bill," said Representative Bill Pascrell, a New Jersey Democrat who sits on the tax-writing Ways and Means Committee. "If it was up today, I wouldn't vote for it."
Once again, Obama is finding his ability to unify is inextricable from his ability to displease. The chances of a single vote on the jobs plan he issued look even slimmer than before.