NY Times v. WSJ on President Obama's Tax Plan • TaxProf Blog

New York Times editorial: The Need to Agree to Agree:

Taxes are supposed to be complicated and contentious. Yet, speaking from the White House on Monday, it took President Obama less than 15 minutes to make a strong and sensible case for letting the high-end Bush-era tax cuts expire at the end of 2012. Citing well-documented facts, he pointed out that tax cuts at the top have failed to promote economic growth and have blown a hole in the federal budget.

Under his plan, Americans who make more than $250,000 a year — the top 2% of taxpayers — would see their tax rates go back up next year to the levels from the Clinton years, while those making less than $250,000 — the remaining 98% — would have their tax cuts extended through 2013.

But it’s a message that needs to be sent, loud and clear, over and over. There will never be consensus for solving the nation’s budget problems without first ending the lavish tax breaks at the top. In the near term, letting the high-end tax cuts expire would raise much-needed revenue without harming the recovery because tax increases on high-income Americans do not cut into consumer spending nearly as much as middle-class taxes. The revenue that could be raised — about $850 billion over 10 years — would be a significant step toward reducing the deficit and financing programs to spur the economy.

Mr. Obama laid out the broad issues. Now he needs to drive these points home.

The tax increases would be manageable

Million-dollar earners don't need a break

Small businesses are spared

The strength of Mr. Obama’s argument is unlikely to sway Republicans. But he’s right on fairness and the facts, and will, we hope, prevail in this debate.

Wall Street Journal editorial: Off the Tax Cliff He Goes:

So the 2013 tax cliff is a big enough economic problem that President Obama now wants to postpone it for some taxpayers. But it isn't so big that he's willing to curb his desire to raise taxes on tens of thousands of job-creating businesses.

That's the essence of Mr. Obama's announcement Monday that he wants Congress to extend current tax rates for a year, but only for those making less than $200,000 a year. This is a political gambit designed to protect Democrats who are starting to feel queasy about opposing GOP plans to extend all of the Bush rates as the economy weakens again. The ploy could help Democrats if Republicans fall for it, but it won't reduce the economic damage to the country.

By Mr. Obama's economic logic, tax increases matter on middle-income earners but are irrelevant to everyone else. "By the way, these tax cuts for the wealthiest Americans are also the tax cuts that are least likely to promote growth," as he put it Monday.

But Mr. Obama is demanding tax increases, not tax cuts, and large increases at that. If the Bush tax rates expire as scheduled on December 31, rates on the top two income brackets will jump to 39.6% from 35%, and 36% from 33%. Add the scheduled return of income phaseouts for exemptions and deductions, and the rates go up another two-percentage points—to at least 41% and 35%.

Mr. Obama claims this will merely return rates to what "we were paying under Bill Clinton," but that's not true either. It ignores his ObamaCare tax increase of 0.9% on top of the current 2.9% Medicare tax, plus a new 2.9% surcharge on investment income, including interest income.

That's an additional 3.8% surcharge on investment income, and added to the Bush expirations would take the capital gains rate to 23.8% from 15% today, and the dividend tax rate to about 45% from 15%. In Mr. Obama's economic world, tax cuts for middle-class "consumption" are good, but low rates to spur saving and investment are bad. This makes no sense because consumption is ultimately the product of saving and investment. …

Congress's Joint Tax Committee—not a conservative outfit—estimates that in 2013 about 940,000 taxpayers will have enough business income to meet Mr. Obama's tax increase threshold. And of the roughly $1.3 trillion in net business income, about 53% will get hit with the higher tax rates.

This is because millions of businesses report their income as sole proprietors and subchapter S corporations that file under the individual tax code. So Mr. Obama wants these businesses to pay higher tax rates than the giant likes of General Electric or J.P. Morgan. Does that qualify as "tax fairness"?

As for the impact on growth, even Keynesian theory holds that raising taxes should be avoided in a weak economy. That's the argument that Mr. Obama used in late 2010 when he agreed with Republicans to extend the Bush rates through the end of 2012. …

The good news Monday is that Republicans in Congress and Mr. Romney seemed disinclined to take this class-war bait. Perhaps they realize that if they agree to raise some taxes but not others, they'll dispirit their own base and hurt the economy. They can also put Senate Democrats on the spot by forcing them to choose between extending rates for everyone and accepting Mr. Obama's tax increase. Republicans can win this debate by stressing growth over fairness and jobs over income redistribution.