One prominent group, the Committee for a Responsible Federal Budget (CRFB), argues for keeping the current rates, and generating revenue by, for example, capping deductions at $25,000. That would bring in about as much revenue as putting the top 2 percent of taxpayers back on the Clinton rates – $950 billion over the next decade. It’s not $1.6 trillion, but it’s a start.
The CRFB argues that raising the top rates “could have some negative effects on people’s incentive to work or invest,” and economic growth could be harmed.
But the Obama White House isn’t swayed. And it’s already counting on reducing the value of tax deductions and other tax benefits to get to $1.6 trillion.
All these think-tank plans that promise to raise revenues without raising tax rates, they’re “always a little bit like Jell-O,” said Jason Furman, deputy director of the National Economic Council, in a White House briefing on Wednesday.
The idea, apparently, is that if you squeeze down on one part of a plan, a problem shows up elsewhere. The CRFB’s proposal to cap deductions at $25,000, for example, would produce a tax hike for 17 million families that make less than $250,000.
“Forty percent of the revenue in this plan would come from those middle-class families,” and taking that revenue out of the equation reduces the value of the plan, he said.
Charitable deductions would also take a massive hit under the CRFB proposal.
“You look at the top 1 percent of households in this country – under this proposal, 97 percent of them would lose any incentive at all to give additional money to charity,” Mr. Furman said. Charities would take a $10 billion hit if the wealthy lost their deduction, he said.