Last year, when President Obama was negotiating with House Speaker John Boehner to raise the debt ceiling, he offered a deal that would raise $800 billion in revenue over the next 10 years, while also making cuts to Medicare and Social Security in the form of stingier benefits and a higher retirement age. From the perspective of liberals — and Obama’s own agenda — this was a terrible idea. A figure of $800 billion isn’t nearly enough to fund future obligations, and the proposed (regressive) cuts to entitlement programs would unfairly burden middle- and lower-income seniors who rely on income from Social Security and health benefits from Medicare.
It should be said, however, that this deal was negotiated when Obama was near the nadir of his popularity. Unemployment was still above 9 percent, and his approval rating had fallen to the low 40s — he was on track to defeat, and he lacked the political capital necessary to push against Boehner and the House Republicans.
Now, of course, he’s in a much better position: With a solid reelection win and expanded Democratic majorities in the Senate, he has real leverage. And as such, he’s offering a deal that’s much better for liberals, and much less favorable to Republicans. Instead of $800 billion in revenue, he’s calling for $1.6 trillion, drawn in large part from increased taxes on the wealthy. But this isn’t a new plan — it’s what’s outlined in his 2013 budget, and — by and large — it’s what he campaigned on.
Where would the revenue come from? The Tax Policy Center provides an analysis: $849 billion would be raised from letting the Bush tax cuts on high earners expire. $584 billion would come from limiting itemized deductions, closing a variety of loopholes and ending tax breaks for oil and gas companies. $148 billion would come from limits placed on corporate tax shifting (to lower tax countries), and $143 billion would be raised by restoring the estate tax to its 2009 levels. The remaining revenue would come from the “Buffet rule” — a new tax on millionaires — and some of this would be offset with tax reductions.
Would Republicans accept a deal like this? It’s hard to know. If they don’t make some agreement, however, the government will take in even more revenue, with the full expiration of the Bush tax cuts and a return to Clinton-era rates (to say nothing of the large military cuts). Compared to that, Obama has offered a solid deal.
To set the fiscal cliff aside for a moment, it should be said that, in the medium-term, it’s not enough to raise taxes on the wealthy. For the kind of government liberals want, a middle-class tax hike is inevitable. At the moment, the fragile recovery makes that a bad idea. But at sometime in the near future, ordinary Americans will have to start paying more as well.