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Thursday, November 15, 2012

WSJ: The President's Tax Math

Wall Street Journal editorial:  The President's Tax Math:

'You know, the math tends not to work," declared President Obama at his Wednesday press conference, as part of his explanation for why closing tax loopholes for the wealthy wouldn't provide enough revenue for a budget deal. Ergo, he says, tax rates must go up immediately for those making more than $250,000 a year, even if this means sending the economy over the January 2013 tax cliff.

The President must be getting bad advice because his math is mistaken in two ways. He's wrong on the revenue arithmetic of limiting deductions, and he's also wrong in claiming that raising tax rates as he proposes would do much better. ...

All of which makes us wonder why Mr. Obama is so insistent on raising tax rates now, even if he can get nearly the same amount of revenue from reducing deductions. Here's one guess: He really doesn't care if there's a budget deal this year that avoids the tax cliff.

By taking an absolutist line, he's basically gambling that Republicans will be more reasonable than he is and will blink. But if they don't blink and we go over the cliff, from his point of view so what? Mr. Obama then has an excuse to blame Republicans if there's another recession. Meanwhile, he pockets the higher tax rates that take effect on January 1 anyway, and he can then negotiate a budget deal next year without having to make any tax concessions. He pleases his left wing for which higher tax rates are a secular religion, while pinning one more defeat on Republicans. ...

[I]n the real world, stocks took another dive on the President's remarks. The Dow fell 185 points, and it is now down 674 or 5% since Mr. Obama's re-election. The President is playing a game of political chicken with the economy.

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