Paul L. Caron

Monday, November 26, 2012

Rattner: More Chips For Tax Reform

New York Times op-ed:  More Chips For Tax Reform, by Steven Rattner:

Almost lost in the tug of war over whether the top income tax rate should be 35% or 39.6% is another consequential tax issue: the proper rate for capital gains and dividends.

It was the absurdly low rate on those forms of income — just 15% — that yielded Mitt Romney’s embarrassingly small tax payments. And that’s what also led to Warren Buffett’s lament that his tax rate was lower than his secretary’s.

So as we scurry around looking for new revenue to help address the yawning budget deficit, let’s zero in on this special preference.

President Obama has proposed much of the needed adjustment, including eliminating the special treatment of dividends and raising the tax on capital gains to 20% for the rich. Personally, I would go further and raise the capital gains rate to 28%, right where it was during the strong recovery of Bill Clinton’s first term, and grab hold of a total of $300 billion of new revenues over the next decade. ...

Increased revenues, meaning higher taxes, will be a central element of any successful long-term budget plan, and President Obama is right to insist that the wealthy — the slice of America that has come through the recession in by far the best financial health — should provide those funds.

Here’s the math: We need at least $4 trillion of long-term deficit reduction, with a substantial portion — on the order of $1.2 trillion — coming from new revenues.

Sources: Treasury Department; Tax Policy Center; Joint Committee on Taxation

So I’m all for raising rates as President Obama has proposed. But in a divided government, compromise is needed, and happily there are other chips that can be put on the table as we bargain over how to raise the needed revenue from the wealthy.

(Hat Tip: Ann Murphy.)

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Regarding the proposal to cap deductions:

The ostensible reason for allowing charitable deductions is that charitable activities substitute for government activity. So why limit the deduction for state and local taxes, which aren't just theoretically a substitute but are actually, in fact, government activity?

Posted by: Anonymous | Nov 26, 2012 12:14:43 PM