Does President Obama’s plan raise taxes? Yes. Does it cut taxes? Well, also yes. It just depends on which baseline you use.
The natural way to judge a policy proposal is to compare it to a world in which we do nothing. In that world, all of the Bush tax cuts expire, raising about $3.7 trillion. Compared to that world, Obama’s plan cuts taxes by about $2 trillion. That’s not some gimmickry with the numbers, either: that’s how the Congressional Budget Office will look at it, and that’s how Sen. Tom Coburn explained the tax changes in the Gang of Six’s proposal.
The gimmickry comes in how Washington actually looks at tax proposals. Politicians on both sides pretend that the law doesn’t really say the Bush tax cuts will expire. Republicans tend to treat all of them as permanent, and Democrats tend to treat all but the cuts for income over $250,000 as permanent.
So perhaps the better question is how this plan stacks up against other proposals floating around Washington. Compared to the Simpson-Bowles/Gang of Six proposals, which raised $1.2 trillion by reforming the tax code and then another $800 billion by letting the Bush tax cuts for income over $250,000 expire, Obama’s proposal generates $500 billion less in revenues. In fact, compared to Obama’s April deficit proposal, which paired tax reform that would raise $1 trillion with the $800 billion from the upper-income tax breaks, the new plan raises about $300 billion less in taxes.
But compared to the deals Obama offered Speaker John Boehner during the debt-ceiling negotiations — deals which ranged from $800 billion in taxes to $1.2 trillion, depending on the severity of the entitlement cuts — this plan includes more tax increases. Same goes for a world in which the only thing we do on taxes is let the Bush cuts for income over $250,000 expire.
So if you compare Obama’s plan to doing nothing, it’s a huge tax cut. If you compare it to the major bipartisan plans, or even Obama’s April plan, it includes significantly fewer tax increases. But if you compare it to the compromise plan he offered Boehner, or a world in which Democrats only manage to sunset the top slice of the Bush tax cuts, it includes some significant new revenues. There’s no doubt that the anti-tax types aren’t happy with Obama’s proposal — Brad Dayspring, communications director for Majority Leader Eric Cantor, tweets, “President Obama’s tax hike would be LARGEST increase in modern history” — but they have a lot to be happy with given the direction of the general debate.