The Obama administration's target of $1.6 trillion in taxes isn't anything new. It's an update of the $1.5 trillion in taxes they've been proposing since 2011. A year has passed, which means the same policies -- letting the Bush tax cuts expire for income over $250,000 and then limiting some deductions and loopholes for wealthier taxpayers -- will now raise $1.6 trillion rather than $1.5 trillion, but there's nothing new in their goal.
Here's what is new: The White House is saying, clearly, that they won't permit the top tax rates to remains where they are. They're taking House Speaker John A. Boehner's proposed deal and rejecting it.
Recall what Boehner (R-Ohio) said:
For purposes of forging a bipartisan agreement that begins to solve the problem, we’re willing to accept new revenue, under the right conditions.
What matters is where the increased revenue comes from, and what type of reform comes with it.
Does the increased revenue come from government taking a larger share of what the American people earn through higher tax rates?
Or does it come as the byproduct of a growing economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes, and lower rates for all?
That looked like the outline of a deal. Republicans agree to raise revenues so long as they get the fig leaf of holding rates steady, or potentially even lowering them. The White House is saying the deal won't work.
They're saying that because they believe, as a matter of math, that the deal quite literally won't work. "Higher revenues, lower rates" sounds good on paper, but it's devilishly hard to do in practice.
To get the kind of revenue we're talking about here, you have to be willing to wipe out provisions like the charitable deduction and the mortgage-interest deduction at higher levels. No one has shown any willingness of being open to that, and it's not even clear that it's a good idea. “When you take a cold, hard look at the amount of resources you can raise from that top 2 percent of Americans through limiting deductions, you will find yourself disappointed relative to the magnitude of the revenue increases that we need," Treasury Secretary Timothy F. Geithner said.
For the White House, one takeaway from the 2011 negotiations was that Republicans like to talk about tax reforms that will raise revenue, but when you drill down, the revenue comes from some combination of dynamic scoring (simply assuming the new tax code leads to more growth which generates more revenue) and a vague promises that Congress will get to work on figuring out how to close some tax loopholes. That is to say, when you drill down, it's not clear the new revenue will come at all.
The White House's view is that real revenue from higher marginal tax rates in the hand is preferable to promised revenues from some vague tax reform process in the bush. And so they're not going to extend the high-income Bush tax cuts just because Republicans are promising tax reform. If, after the high-income Bush tax cuts expire, Congress wants to do tax reform, and if Congress can then figure out a way to raise that revenue, and probably a bit more, from closing loopholes or adding new taxes, then that's worth looking into. But the White House's position, for now, is that there's no way the top tax rate will remain 35 percent after January. They're not accepting Boehner's preferred framework in which the top tax rate doesn't rise.