Former President Bill Clinton is set to deliver tonight’s keynote speech at the Democratic National Convention. That means you can expect to hear a lot of Democrats say some version of the following: “What’s so bad about going back to the Clinton-era tax rates?”
It’s a good question. But when you hear it asked, remember that most Democrats — including the Obama administration — do not want to go back to the Clinton-era tax code. Not for the country, and not even for the rich.
You can see this in the Congressional Budget Office’s analysis of the taxes in President Obama’s 2013 budget proposal. They compare his tax plan to what they call “the baseline,” which assumes the expiration of all the Bush tax cuts, all the stimulus tax breaks and so on. That brings you back to something that pretty closely approximates the Clinton tax code. And the difference between the two plans is huge. Clinton’s tax code raises about $2.35 trillion more in revenues over 10 years than Obama’s tax plan.
When Obama talks about his tax plan, he tends to be careful in how he phrases it. “All I’m asking is that folks like me go back to the rates that we paid under Bill Clinton,” he likes to say. But here’s what that actually means.
First, Obama is keeping the Bush tax rates for all income under $250,000. That means he’s keeping about 80 percent of the Bush tax cuts. So already, his tax code looks more like Bush’s than it does like Clinton’s. Here, from the Tax Policy Center, is a table showing the relevant rates. As you can see, Obama’s column — “Administration’s FY2013 Budget Proposal,” as it’s called on the chart — looks a lot more like current policy than it does like letting the Bush tax cuts expire.
Second, it’s not quite true that even richer folks would go back to paying the Clinton-era tax rates. Remember that people don’t pay a single tax rate. They pay different tax rates on different parts of their income. So a family that makes $300,000 would pay the Clinton-era rate on their income over $250,000 — which is, in this case, is $50,000. But they would pay the Bush rates on all the income under that, which is most of your income.
Third, Obama has proposed raising taxes on richer folks through a variety of means that aren’t related to marginal tax rates. For instance: he wants to cap itemized deduction for people making more than $250,000 at 28 percent, he wants to set the estate tax to its 2009 (which is to say, Bush-era) level, he wants to eliminate the loophole for carried interest and more.
The end result is that he wants to raise almost twice as much money from folks making more than $250,000 than he’d get from simply letting the Bush tax cuts expire for this group. So overall taxes for them are going to be much higher than simply going back to the Clinton-era rates would suggest.