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Obama proposes tax increases to pay for tax cuts

September 13, 2011

The President has released the tax increases he wants to see as part of his "jobs" bill. They should be familiar, because he keeps proposing them:

- Taxing partnership carried interests as ordinary income

- Repeal bonus depreciation on private jets

- Take away some deductions from the oil industry -- including some that are allowed to all taxpayers otherwise, like the Sec. 199 manufacturing deduciton

- Cap the tax benefit of itemized deductions at 28%.

Christopher Bergin* David Brunori gets the politics right:

Never going to happen.

First off all, Republicans like Eric Cantor in the House will never agree to a cap on itemized deductions. And Senator Chuck Schumer, Democrat from New York, will do whatever he needs to do to protect his friends in the hedge fund industry.

It's a lame bunch of proposals. The man who uses the most lavish private jet in the world is beating up on somebody who wants to buy a U.S.-made HondaJet for business. He wants to complicate the tax code by disconnecting the rate schedules for income and deductions. He wants to beat up on the oil industry to fund green energy boondoggles. And he wants to beat up on private equity when it's already hard to get people to invest (as Megan McArdle points out, hedge fund managers don't really get that much tax benefit from carried interests)

Megan McArdle points out the obvious:

But more importantly, paying for the bill with tax hikes--any tax hikes--is going to substantially reduce the stimulus this bill provides. Just as government spending boosts aggregate demand, tax hikes (yes, even on rich people), reduce aggregate demand. Providing stimulus through payroll tax cuts that are financed with tax hikes on other people is like trying to boost your household income by making your wife pay you to mow the lawn.

I'm sceptical that "aggregate demand" is really the problem (see Arnold Kling), but if you believe in it, then increasing taxes to cut taxes is self-evidently silly.

More coverage:

Going Concern
Tax Policy Blog

*Sorry about misattributing this to David Brunori -- thanks to Tax Analysts for pointing out the mistake.

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Listed below are links to weblogs that reference Obama proposes tax increases to pay for tax cuts:

» Tax Increase to Pay for Tax Cuts? Yeah, That’s Gonna Fly… from Taxable Talk
President Obama released his jobs bill on Monday. You needn’t read it; it has no chance of passing the House. Back in July, President Obama stated he’s all for compromising. Either way, I’ve told leaders of both parties that they must come ... [Read More]


Actually, he's proposing permanent tax increases to pay for temporary tax cuts.

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