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Why Obama insists on higher tax rates for the wealthy

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“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.

Obama also made clear this week that he’s not about to gut charitable giving.  

“I can’t imagine there’s a person here who doesn’t sit on a number of not-for-profit boards, hospital boards,” Obama told corporate CEOs at the Business Roundtable. “In your respective communities, you are supporting an entire infrastructure that is the glue that holds our communities together. So the notion that somehow we’re going to just eliminate charitable deductions is unlikely.”

“What that means is, is that any formula that says we can’t increase tax rates probably only yields about $300 to $400 billion, realistically,” the president continued. “And that’s well short of the amount of revenue that’s needed for a balanced package.”

There’s also a healthy dose of politics in Obama’s insistence that tax rates go up on top earners. By making it his one nonnegotiable demand, chances are high that he will get at least something – if not a full return to the Clinton-era rate, then perhaps some midpoint between 35 and 39.6 percent. Any raise in tax rates would be a poke in the eye of Grover Norquist, author of the famous antitax pledge signed by most Republican legislators.

Obama also needs to keep an eye on his political base, which wants him to hang tough on tax rates, says Democratic strategist Peter Fenn.

“They worked their butts off to elect him,” says Mr. Fenn. “He’s got to stand up for them. If he stands up on this, then he has more wiggle room on entitlements and budget cuts.”

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