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Obama Completes His Plan For Growth And Deficit Reduction

by Mike Godfrey,, Washington

21 September 2011

Building on the payroll tax reductions, additional tax credits and reduced tax expenditures already contained in the draft American Jobs Act, President Barack Obama has announced further measures to complete a package targeted at economic growth and deficit reduction in the United States.

His proposals to the Joint Select Committee on Deficit Reduction, which is currently looking at measures to reduce the aggregate deficit over the next decade by USD1.5 trillion, are calculated, in fact, to produce both the funding to pay for the American Jobs Act and also net savings of more than USD3 trillion over the next decade.

Including the approximately USD1 trillion in spending cuts that have already agreed in the Budget Control Act of 2011, the President pointed out that the budget savings would total more than USD4 trillion over the next decade. “This would bring,” he said, “the country to a place, by 2017, where current spending is no longer adding to our debt, debt is falling as a share of the economy, and deficits are at a sustainable level.”

President Obama has called on the Joint Committee to try and undertake comprehensive tax reform. However, if it is unable to do so in the short time it has available, he believes that the measures he proposes should be enacted on a standalone basis.

“Their enactment as a standalone package,” he adds, “would still significantly improve the country’s fiscal standing, represent an important step toward more fundamentally transforming our tax code, and serve as a strong foundation for economic growth and job creation.”

Above all, he believes that a solution to the US fiscal deficit should contain tax increases as well as spending cuts. He considers that “for us to solve this problem, everybody, including the wealthiest Americans and biggest corporations, have to pay their fair share.”

In particular, he offers a detailed set of specific tax loophole closings and measures to broaden the tax base that, together with the expiration of the high-income tax cuts, would be more than sufficient on their own to reach the USD1.5 trillion target.

These include allowing the 2001 and 2003 Bush tax cuts for upper income earners to expire (USD866bn); limiting deductions and exclusions for those making more than USD250,000 a year (USD410bn); and closing loopholes and eliminating special interest tax breaks (approximately USD300bn).

They also contain the co-called “Buffett Rule”, which has grabbed the headlines and specifies that people making more than USD1m in income each year should not pay a smaller share of their income in taxes than middle-class families pay. Warren Buffett had pointed out that his effective tax rate was lower than his secretary’s, and professed that he was willing to pay more tax.

However, as the President must have known before his announcement, his political opposition would be unable to accept his tax-increasing proposals. John Boehner, the Republican Speaker of the House of Representatives, had confirmed his party’s position only a few days previously, saying that tax increases were not a viable option for the Joint Committee. “When it comes to producing savings to reach its deficit reduction target,” he concluded, “the Joint Committee has only one option: spending cuts and entitlement reform.”

It was predictable, therefore, that his statement in response to the President’s latest package of measures said that the proposals would raise taxes on both small businesses and on private capital, and that the President had not made a “serious contribution” to the Joint Committee’s work. “This administration’s insistence on raising taxes on job creators … (is the reason) the President and I were not able to reach an agreement previously, and it is evident today that these barriers remain.”

Orrin Hatch, the Republican Ranking Member of the Senate Finance Committee, called the policies “class warfare”, adding that “the President doesn’t get it. … Tax hikes on job creators isn’t a solution to Washington’s spending problem and won’t help our ailing economy or the 14 million Americans who are out of work. Tax increases thinly veiled as tax reform isn’t reform.”

TAGS: individuals | tax | economics | business | fiscal policy | budget | corporation tax | tax credits | United States | tax breaks | tax reform | individual income tax

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