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Friday, March 1, 2013

Bob Woodward was Wrong: Obama is not Moving the Goalposts -- He's Always Been Obsessed with Raising Taxes

I'd like to agree with Bob Woodward when he came out and accused President Obama of "moving the goalposts" by demanding that further tax increases be part of alternatives to the sequester, but I can't. He's wrong   The Budget Control Act of 2011 that brought us the sequester was totally driven by the two parties' posture on taxes.

Keith Hennessy, a former Bush 43 official, wrote a series of blog posts when the BCA was being enacted into law, walked through the law at the time and showed how it reflected each party's political calculations on taxes. You may remember that the bill established a "super-commission" equally split between the parties and both houses.  The super-commission process for tax hikes required some Republican consent; so, obviously, everyone knew there weren't going to be any.  And for spending cuts, vice versa -- Democratic consent so again, failure was likely.  What the Democrats won in the negotiations was the spending cut breakdown -- hardly any on entitlements and more defense than non-defense on the discretionary side. As Hennessy explains, the White House was betting that the pressure on the Republicans to prevent the defense cuts would cause them to cave on taxes.  So Woodward is wrong,  Further tax hikes were always the goal of the Administration, however circuitous the route.

Another way to put the Administration's thinking, however, is to recognize that they are so totally obsessed with raising taxes on high-income earners that they are willing to keep the defense budget bloated to do so. What leadership,

We see more of this tax hike obsession today in the President's remarks on the sequester. He continues to demagogue by referring to high income citizens as "special interests" who get "tax breaks" who, he argues, are taking from "the middle class".  The ones who pay pay most of the cost of government that benefits everyone, he says, are taking from the ones who pay less.

By "tax breaks" what he means are the tax deductions that are available to everyone, but result in more revenue reduction when taken by taxpayers in the highest tax brackets, because their income tax rates are higher.  Let me be clear:  these are general, neutral, nondiscriminatory tax breaks for all taxpayers.  But, because of the progressive rate structure, which imposes special tax hikes on upper income taxpayers, the deductions reduce those taxpayers' taxes at the higher rate.  This is not a special tax break, it is a reduction in the special tax burden the progressive rate structure imposes above certain income thresholds. It is the progressive rate structure that is "special" and that is a tax break -- not for the ones subject to it, but for the ones who aren't.

The President also claims in response to a question that he has reduced the deficit by $2.5 trillion.  As I laid out in a post a few days ago, that is false. He is counting only what was done since his party lost the 2010 midterm elections and ignoring (a) the increased deficit his Administration and the 111th Congress enacted from 2009-11, (b) the $4 trillion in deficit increases caused by making the Bush tax cuts permanent for the bulk of taxpayers, and (c) the vast addition to the deficit in the out years caused by Obamacare, that were not measured by CBO because it was limited by law to only 10 year forecasts.