All the 2001 and 2003 Bush tax cuts.
It would have been the Mother of All Tax Hikes, a $3 trillion tax increase during shaky economic times. It would have broken a campaign promise not to raise taxes on middle-income Americans.
President Obama was shockingly close to embracing such a plan back in 2009. And if he’s reelected in 2012, Obama may well reconsider the idea and let all the Bush tax cuts expire as they are scheduled to do in 2013.
At least, that’s the story—and prediction—told by journalist Noam Scheiber in his new book, The Escape Artists: How Obama’s Team Fumbled the Recovery.
Short version: In the fall of 2009, Obama’s chief congressional lobbyist Phil Schiliro cooked up a plan to extend the middle-class Bush tax cuts for two years while letting the upper-income tax cuts expire on schedule. If Congress couldn’t devise a way to pay for the $2.3 trillion extension of the middle-class cuts, they would expire in 2015. Schiliro easily sold White House budget director Peter Orszag on the idea. “[Orszag] believed the only practical way to balance the budget was to repeal all the Bush tax cuts, not just the upper-income variety.”
Orszag then presented the plan to Obama:
… the administration’s chief wonk—Barack Obama—was intrigued. He asked a series of encouraging questions about how the proposal would work. According to two sources in the room, he was taken with both the political merits—that is, putting Republicans on the defensive—and the policy rationale of lopping trillions off the deficit. He gave no indication that he was troubled by the plan’s most explosive feature: that it would likely break a central campaign promise—not raising taxes on the middle class—one Republicans would surely wrap around his neck with populist glee.
The White House political team and Vice President Joe Biden eventually helped kill the idea. Intriguingly, however, Scheiber thinks that if Obama is reelected, letting all the Bush tax cuts expire—which will happen automatically if Congress does nothing—”may simply be too tempting to pass up.”
As Scheiber explains:
What is clear is that, having been tempted to end all of the Bush tax cuts in 2009, the president would only find the idea more attractive were he to win a second term. At that point, he will never again stand before the voters, at least not as a presidential candidate. There would be nothing to stop him from flouting a campaign promise, even one as sensitive as his tax pledge.
Perhaps most important of all, killing the entire zombie army of Bush tax breaks would be far, far easier than only slaying the upper-income portions. To pull off the former, Obama literally has to do nothing—the tax breaks are slated to expire on their own. To do the latter, he would have to pass legislation extending the middle-class elements. As a practical matter, that means rounding up majorities in the House and Senate, which seems unimaginable given the likely balance of power on Capitol Hill after the election. (There is a third option, which entails striking a deal with Republicans to junk the entire tax code and rebuild it from scratch, but it’s hard to envision this happening between Election Day and December 31.)
My take: Now we have even more evidence as to why Obama created a debt commission—and then rejected its recommendations. It didn’t tax or spend enough.
See, the Bowles-Simpson commission recommended a) cutting individual tax rates to as low as 23 percent, b) eliminating many if not all tax breaks, and c) capping federal spending and revenue at 21 percent of GDP. At that level, taxes as a share of the economy would be about 3 percentage points above the historical average, a massive tax hike.
But even that would not be enough taxpayer dough for many liberal economists, such as those that work in the Obama White House. They believe federal spending will need to be much, much higher in the future due to a combination of factors: an aging population, rising healthcare costs, the need for more public “investment,” and greater debt service costs when interest rates eventually rise. (Indeed, three liberal think tanks recently constructed long-term budget plans, and their average projection for federal spending by 2035 was 25 percent of GDP—with a bullet.)
Generating the tax revenue that Obama would need to finance all his spending would require sharply higher taxes on the wealthy—and everybody else. And according to Scheiber, Obama might well like to start the taxathon with a $3 trillion tax hike on all Americans. Of course, that still wouldn’t be enough, which is why the next step might be a value-added tax.
Obama has been boasting that he has “five more years” in office. To do what, exactly? Now we know.