Among the many promises the two candidates have made this year, only President .Obama has promised to raise taxes. But, unlike back in 1984 when Walter Mondale promised to raise everyone’s taxes, Obama’s only promised to raise taxes on upper-income taxpayers. Republican nominee Mitt Romney hasn’t promised to raise anyone’s taxes, although he has promised to cut them for the middle class.
Economists, draw your swords.
What taxes do you see going up in 2013, regardless of who’s president?
Diane: “If Obama wins, it’ll be pretty hard for him not to keep his promise to raise the rates for the high-income taxpayers, and there will be continued pressure as the year goes on to allow even more of the Bush tax cuts from 2001 and 2003 to expire. Regardless of who wins, we’ll see revenue from the individual income tax that’s even higher than what Obama’s proposing. Obama has proposed some base broadening measures, and that general approach is likely to gain traction. If Romney wins, there will be strong resistance to raise any revenue and there will be pressure to extend all of the Bush tax cuts.”
Ike, your turn.
Ike: If Obama wins, taxes are certainly going to increase for those making over $250,000 or maybe $1 million. Obama is pretty intent on doing this as a symbolic move as much as anything else. There are other taxes, including those as part of the Affordable Care Act, that will also go up. As for Romney, he’s pretty intent on not increasing any taxes. He’s talked about getting rid of some deductions, either to pay for reducing tax rates or to go towards deficit reduction. Tax policy will be a big battle either way.”
That was easy. Now, let’s talk about some of the tax breaks that might go away to pay for keeping tax rates low or for reducing the deficit.
Let’s focus on three of them.
Will the next president take away the mortgage-interest deduction?
Diane: “Obama won’t get rid of this tax break, and neither will Romney. They might scale it back, say by putting in a cap or a dollar limit for high-income earners. None of the big tax breaks will go away.”
Ike: “Obama would take it away only if dragged into it. Romney is likely to do something like replace the deduction with a 15 percent credit, as discussed in 2005, or scale the dollar amount for the mortgage down from $1 million to maybe $500,000.”
Let’s look at another one: Right now, long-term capital gains and dividends are taxed at a lower rate relative to ordinary income. Will this change?
Diane: “Obama has dipped his toe in the water of taxing all income at the same rate, but he doesn’t seem willing to embrace the idea for all taxpayers. While I think capital gains should be taxed at the same rate as ordinary income, neither candidate wants to raise taxes on middle-income taxpayers, so that’s not happening.”
Ike: “Obama doesn’t seem opposed to doubling or maybe even tripling the rate on capital gains, but Republicans will go to their graves before they allow that to happen. They might allow a small increase in the rate, say from 15 percent to 20 percent, but there are lots of other tax breaks to eliminate before taking this one away.”
The federal government allows taxpayers a deduction for state and local taxes. Should it continue to do this?
Diane: “Obama might put some limit on these deductions, but doing so is politically even more difficult than taking away other deductions.”
Ike: “Taking away those breaks would be a very heavy lift. The tax deduction essentially subsidizes high-income taxpayers in high-tax states without giving any benefit to the federal government; it doesn’t do anything for growth and is totally unproductive. Romney would probably take on trying to eliminate this deduction, but Obama wouldn’t.”
There’s one other issue to consider. Under current law, taxes are scheduled to increase by nearly $500 billion in 2013 and America will go over what’s called the ‘fiscal cliff.’ Unless the lame duck Congress changes the law, 90 percent of American families will see their taxes go up next year, according to estimates from the non-partisan Tax Policy Center.
Experts, what do you have to say about those tax increases?
Diane: “It’s not a credible threat to let all tax cuts expire and thus raise rates for everyone, as Obama has suggested he would, and it would be irresponsible to go over the fiscal cliff and go into recession. In the short run, we can’t let current law kick in, but in the long run, we have to do something about the debt, which means raising taxes or cutting spending, which is what the fiscal cliff does. Unfortunately, neither candidate has a realistic way to fix the debt.”
Ike: “If Obama is re-elected, tax rates on millionaires are likely to go up. Romney’s likely to agree to a short-term patch through the end of 2013 with an agreement to do comprehensive tax reform, even though comprehensive reform’s not likely to happen.”
Whether it’s re-election for President Obama or election for President Romney, tax policy will be on the agenda largely because the federal government needs the money. As these two tax experts explained, however, the exact details depend on who emerges victorious on Tuesday.
Joann Weiner teaches about economics, finance and taxes at George Washington University. She has previously worked for Bloomberg, Politics Daily, Tax Analysts and the U.S. Treasury Department. You can follow her on Twitter @DCECON