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Wednesday, November 7, 2012

Obama Win Seen Pyrrhic Without Republican Congress Assent on Taxes

Bloomberg:  Obama Win Seen Pyrrhic Without Republican Congress Assent on Taxes:

Barack Obama’s biggest test on tax policy will come even before his second term starts Jan. 20. The president wants to use an end-of-year showdown with Congress to force higher taxes on top earners and fulfill a promise from his 2008 and 2012 campaigns. To succeed, he will have to risk raising taxes for everyone or persuade Republicans to drop their demand to extend expiring tax cuts for all income levels. ...

Obama wants to take advantage of the leverage gained from his victory and his veto power to pursue a “grand bargain” that would avert the so-called fiscal cliff and employ a combination of tax increases and spending cuts to reduce future budget deficits. ...

In a speech yesterday as the Republicans neared clinching House control, Speaker John Boehner said the election wasn’t a “mandate for raising tax rates.” Boehner’s emphasis on “tax rates” as opposed to “taxes” indicates that the party may pursue policies that would curtail tax breaks to pay for keeping rates where they are now. Republican congressional aides told Bloomberg News Oct. 19 that they were designing options that would achieve those goals if the politics move in that direction.

Douglas Holtz-Eakin, a former director of the Congressional Budget Office, predicted that as in 2010, Obama will initially to extend all the tax cuts to prevent economic harm and later will seek higher taxes on top earners. ... Other pieces of Obama’s tax policy aren’t directly tied to the fiscal cliff. The president wants to cap tax breaks for high earners, including the deduction for charitable contributions and the exclusion of municipal bond interest. He has offered a series of miscellaneous policy changes, including taxing the carried interest of private equity managers as ordinary income, instead of at the lower capital gains rate, and removing about $4 billion a year in tax breaks from the oil and gas industry.

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