Conservatives like to say that Obama has been responsible for massive tax increases. But the president's narrowly-focused tax hikes are so modest that they don’t do nearly enough to balance the budget.
Conservatives like to say that President Obama has been responsible for massive tax increases. It is wonderful rhetoric that plays to the big tax image Democrats have been saddled with for decades—sometimes with good reason. But for most households, this claim is the economic equivalent of the birther movement: It is as credible to call Obama Tax Hiker in Chief, as the Heritage Foundation ’s J.D. Foster does, as to claim he was born in some country other than the United States.
To tell a more accurate story, my Tax Policy Center colleagues looked at what would happen to both after-tax incomes and effective tax rates in 2013 if Obama could somehow get his tax agenda enacted (which he can’t, but that’s another story). TPC found that average after-tax incomes would be higher (and effective tax rates lower) in 2013 under an Obama tax code than they would be if Clinton-era rules applied. And average taxes would be about 2 percent higher than if President Bush’s 2001 tax cuts were still in effect. But only because the very highest earners would pay lots more.
Average after-tax incomes would, in fact, be almost exactly the same for taxpayers in every income category except for those in the top one percent. If many Democrats got their wish and we returned to the Clinton-era tax law, after-tax incomes in 2013 for a typical household would average $55,647. If Republicans got their wish and we kept all of the 2001 and 2003 tax cuts, they would rise to $57, 528.
But what would happen to incomes in 2013 if Congress enacted Obama’s proposals to roll back the Bush-era tax cuts for those making $200,000 or more, limit the value of itemized deductions to 28 percent for those same taxpayers, and kept the 2010 health law’s Medicare surtax on high-earners, among other things? After-tax incomes would average $56,797, and taxes would be about $700 more than if the Bush-era rules still applied.
Nearly all of those higher taxes would whack highest income households. For just about everyone else, average after-tax incomes would be almost exactly the same whichever rules apply. For example, those with an average pre-tax income of about $50,000 would pay roughly $100 less in taxes in Obama-land than under the Bush tax code. Those making an average of about $200,000 would pay just $200 more.
The story would be different for the top 0.1 percent of the income distribution, whose pre-tax income would average nearly $8 million in 2013. Their after tax-income would average a bit less than $5.3 million under the Bush rules and a bit more than $4.7 million if Obama got the tax code he wants. But even after a $550,000 tax increase their after-tax incomes would still be vastly more than middle-earners.
Another way to tell the story is by looking at average effective tax rates. The picture would be the same. These rates would be about one percent higher under an Obama law than under the Bush code. But they’d essentially be no different on average except for those at the top, who would take a pretty big hit. The top 0.1 percent would face effective tax rates about 7 percentage points higher in Obama-land (39.7 percent v. 32.8 percent) than on Plant Bush.
Bottom line: A typical household may pay a few bucks more or less if Obama gets his way on taxes. The only exception: those who make more than about $300,000, who’d on average probably get a big enough tax hike to notice.
Overall, Obama’s narrowly-focused tax hikes are so modest that, even combined with substantial spending cuts they don’t do nearly enough to balance the budget. I’d prefer to see a fiscal deal that cuts spending and raises taxes on most of us—not just the rich. Maybe not in 2013, but gradually over the next few years. Obama doesn’t agree. That may not be sensible fiscal policy but it sure doesn’t make him Tax Hiker in Chief.