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The extreme, job-destroying, reasonable and totally necessary Clinton tax code

In a speech later today, President Barack Obama is expected to endorse a return to the Clinton tax rates for those making a certain amount of money.
REUTERS/Jim Young
In a speech later today, President Barack Obama is expected to endorse a return to the Clinton tax rates for those making a certain amount of money.

WASHINGTON — In a speech later today, President Obama is expected to call for increased taxes on high-income earners, an idea that is being met with an apocalyptical “no” from Republicans.

It’s a non-starter they say, and higher tax rates will kill the economic recovery. Higher taxes on higher-income people, which hit some small businesses, will force layoffs. Higher taxes on energy firms, another idea they say Obama might offer, will cause higher prices at the pump and cause additional economic calamity. In short, said House Speaker John Boehner, if Obama proposes any of that, it’s so much of a no go that it’ll show he’s not being “serious.”

“If the president begins the discussion by saying we must increase taxes on the American people, as his budget does, my response will be clear: tax increases are unacceptable and are a nonstarter,” said Boehner.

So what is this calamitous hike the president may sign on to? In fact, it’s simply the tax rates from when Bill Clinton was president. Incidentally, that was the last time the federal budget was balanced too.

“For those people who make over $1 million a year, if you have their taxes set at the levels during the Clinton era — at a time when we were very prosperous — you would save nearly $400 billion in 10 years on the deficit,” said Sen. Amy Klobuchar on Tuesday. “While not all my colleagues agree on how or even whether we should raise more revenue, every serious bipartisan proposal has made it a clear must.”

A look at the table, and what’s on it
Setting rhetoric aside, one finds that the differences in policy here are real, deep and vast.

Paul Ryan’s budget would take the top tax rates down much further, to 25 percent. That’s not just Ryan’s idea, it’s the firm goal of the House GOP. Ways and Means Chairman Dave Camp told reporters in March that the goal of his panel is to lower the top individual and corporate rates to 25 percent.

On the other hand, several Democrats (like Klobuchar) would support allowing some of those Bush tax cuts to expire, putting the top tax rate back where it was. That policy would would return a top tax rate of 39.6 percent and sliding scale down from there. Since the second Bush tax cut took effect in 2003, the top tax rate has been 35 percent.

And liberals like Keith Eillison want to not just let the entire cuts expire, but increase those top rates, adding in a 45 percent rate for millionaires up to a 49 percent rate for those making $1 billion or more per year.

“Our great country has made a way for people to make fortunes, and that’s a good thing,” Ellison said after announcing his plan last month, listing off public schools, national defense, patent and copyright protections, law enforcement and other guarantees of a secure society provided by the government. “I think that for all that, patriotic Americans would not mind paying their fair share.”

In a speech later today at George Washington University, Obama is expected to endorse a revenue plan somewhere along Klobuchar’s lines — a return to the Clinton tax rates for those making a certain amount of money. While the White House has not released specifics, other similar plans place that floor at $250,000, $500,000 or $1 million and above.

Obama is also likely to target individualized tax carve-outs, which Democrats have taken to calling tax expenditures. The most common one cited on the left is a tax break for oil companies that was intended to help defray exploration and drilling costs when the price of gas was cents for a gallon, but remains as the cost-per-gallon now flirts with $4. Republicans have pre-framed that idea as a tax on energy which would increase prices at the pump.

Another item on the table will be a partial curl-back of the mortgage-interest deduction. No, it wouldn’t go away, but it would be limited, say to the first $500,000 on a home. The average home price in the Twin Cities market is $174,000, so a large majority of Minnesotans wouldn’t see any impact at all there.

For those in the ritzy parts of town, or in more expensive markets like San Francisco, New York City and yes, Washington, they could still take the deduction to $500,000 in value, but would be on the hook for all their mortgage interest beyond that. Klobuchar said she’d like to see such a plan phased in, so as not to disrupt the fragile housing market, but estimated that proposal could save $400 billion or more over the next decade.

Republicans split
Republicans have been split on whether to raise any revenues at all. Some, like Camp, have said the tax base needs to be broadened by closing loopholes, eliminating some tax breaks, etc., while others hold fast to the idea that anything that increases revenue is a tax increase, and tax increases are bad.

Certainly the starting position among Republicans though, is that tax hikes are a no go.

“Not only is raising taxes the wrong move in the current economic environment, but it locks in the Democrats’ status-quo agenda to keep spending taxpayer dollars on duplicative big-government programs,” Majority Leader Eric Cantor said. “Furthermore, it’s the latest in a series of flip-flops from the president and an affront to the bipartisan tax deal that he negotiated with us this winter and has repeatedly credited for the economic uptick.”

Lost in the politics of this argument is that the president and Democrats in the Senate actually have a pretty strong hand to play on the revenue debate. If they do nothing, the entirety of the Bush tax cuts will expire.

Of course, that’s the same position they held at the end of 2010, when they held the House as well, and that debate ended in a short-term extension of every dollar in tax cuts.

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Comments (15)

  1. Submitted by Dale Hoogeveen on 04/13/2011 - 10:54 am.

    Restoring the upper level tax bracket rates from the Clinton administration is not a tax on the American people, but only on a very tiny percentage of them, and then only in their official income which is far less than the value they accrue and conceal in their stacked corporate holdings. The Republican budgets are actually much more of a general tax increase across a much broader spectrum of the American population.

    Be aware however that most of the House Republicans have signed a pledge not to close any of the loopholes in the tax code that allow so many profitable corporations and their wealthy beneficiaries to get out of actually paying the top rates in the first place.

    That specifically is in the fine print of the no new taxes pledges that so many of them had to sign just to get nominated. To even run for reelection they have to either hold to that or counter a very well financed Tea Party opposition just in their own primaries. Few have guts enough for that, but will go along if party leadership will provide them some cover, like Boehmer did when Obama finally called his bluff on the social riders to the current budget and he folded at the last minute.

  2. Submitted by Jim Boyd on 04/13/2011 - 11:23 am.

    And Minnesota needs the state tax code from when Republican Arne Carlson was governor.

  3. Submitted by Dee Ann Christensen on 04/13/2011 - 11:40 am.

    Where’s the proof that raising taxes on high rollers will hurt job creation? How long has this tax been in effect? And…where are the plethora of jobs created by this policy?

  4. Submitted by Paul Udstrand on 04/13/2011 - 12:03 pm.

    Republican economics and budget ideology are simply daft. In 1932 we raised the income tax on the wealthy from 25% to 63%. By 1944 it was up to 94%. This did not kill our economic recovery from the Great Depression, nor did it drive our wealthy our of the country. On the contrary it set up for the biggest and most sustained economic expansion in US history. The fact that we’re even arguing about raising these taxes 4%-5% now simply tells you how completely ignorant and out of touch with reality our political leaders are.

    Tax tables:

    http://www.truthandpolitics.org/top-rates.php

  5. Submitted by Cecil North on 04/13/2011 - 12:36 pm.

    Dee Ann (#3): Where’s the proof that raising taxes on high rollers will hurt job creation? How long has this tax been in effect? And…where are the plethora of jobs created by this policy?

    The obvious answer is that (i) there is no such proof; (ii) the reason there is no proof is because the premise is simply false; and (iii) if Clinton-era taxes were “job killers,” it’s hard to fathom the booming economy, low unemployment, general prosperity and projected *budget surpluses* (remember the debates on how to spend the surplus?)that characterized Clinton’s term in office and suddenly vanished under Bush.

    Bush, who cut taxes, destroyed the economy, mired us in foreign wars, exploded the deficit, and brought unemployment to levels unseen outside of the Great Depression.

    The GOP wants less Clinton and more Bush. Almost funny, almost.

  6. Submitted by Dennis Tester on 04/13/2011 - 12:41 pm.

    “In fact, it’s simply the tax rates from when Bill Clinton was president. Incidentally, that was the last time the federal budget was balanced too.”

    Ok, then let’s also have the spending levels of 1996. Remember, Clinton’s balanced budget was written by Newt Gingrich.

    Paul Ryan’s plan simply takes us back to the spending levels of 2008 and the democrats are calling that proposal a non-starter.

  7. Submitted by Paul Udstrand on 04/13/2011 - 02:02 pm.

    //Ok, then let’s also have the spending levels of 1996. Remember, Clinton’s balanced budget was written by Newt Gingrich.

    Paul Ryan’s plan simply takes us back to the spending levels of 2008 and the democrats are calling that proposal a non-starter.

    Dennis, Gingrich shut the government, lost his party, and had to abandon his tax and budget cuts. The executive writes their budget, congress writes theirs, and then they reconcile, that’s how budgets get done. Newt didn’t write Clinton’s budget.

    Fine, let’s go back to 2008 spending levels, and 2008 taxes rates. You still have to pay off Bush’s wars and debt which are independent of actual spending.

  8. Submitted by Dennis Tester on 04/13/2011 - 03:15 pm.

    Paul, Clinton was dragged kicking and screaming to the republican congress’ balanced budget and now today takes full credit for it. And the press appears to have the same selective memory.

    Remember, all of Clinton’s successes were from signing republican legislation. He was re-elected in ’96 but people seem to forget that for all the bashing the republicans took for balancing the budget (kind of like today), they retained congress.

  9. Submitted by Eric Ferguson on 04/13/2011 - 05:01 pm.

    A 45% rate for millionaries. Travesty! The US Chamber of Commerce will have to serve Ramen in the cafeteria!

  10. Submitted by Alec Timmerman on 04/13/2011 - 10:45 pm.

    Actually Eric, those millionaires will just quit working because that is how the profit motive works. If you can’t take home $1.5 million and only take home $1 million it’s just not worth working anymore.

    And Dennis, nice revisionist history. The tax increases Clinton passed in 1993, without one single Republican, paved the way for the balanced budget. Taxing the wealthy set the table for a decade of job growth and expansion.

  11. Submitted by Paul Udstrand on 04/14/2011 - 07:29 am.

    Yes Dennis, your history is quite dodgy. Clinton’s budget passed by one vote, Al Gore’s. Almost every Republican voted against it. Every time Republicans get their way they create a financial crises, it’s that simple.

  12. Submitted by Dennis Tester on 04/14/2011 - 07:55 am.

    Alex and Paul and confusing Clinton’s tax bill with the spending bills which were authored by the republican congress and signed into law by Clinton with mostly republican support. It was the spending bills, not the tax bill that balanced the budget.

    • Submitted by Robert Gauthier on 03/31/2012 - 12:46 pm.

      Again wrong

      The deficit reduction started in 1992 when Robert Rubin and Alan Greenspan convinced Clinton to cut deficits instead of spending. You have a very narrow and shallow view of history. The Contract On America was not that significant historically, just to the blind believers.

  13. Submitted by will lynott on 04/14/2011 - 08:19 am.

    “It was the spending bills, not the tax bill that balanced the budget.” -Dennis Tester

    Nonsense. The only way the spending bills could balance the budget on their own would be if they cut deep enough to do the trick without the tax increases. Something our own Rs are finding out right now, much to their discomfiture. Are they wise and grown up enough to act on that knowledge? Time will tell….

  14. Submitted by Diane Clare on 04/18/2011 - 02:35 pm.

    kill more jobs? to do what would certainly destroy jobs, sounds pretty stupid to me. I think we have to look to Congress for the whys of the financial meltdown, federal and state. What party was in power when things went totally to hell? What party always spent surplus and rainy day funds and money that was never there? What party took SS and Medicare out of the lock boxes and placed it at their disposal?

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