I was tenatively in favor of the jobs plan that Obama proposed last week. But that's before I realized that he has no intention of trying to get it passed:
The White House said Monday that President Obama wants to pay for his $447 billion jobs bill by raising taxes on the wealthy and businesses. Jack Lew, director of the Office of Management and Budget (OMB), said the tax hikes would pay for Obama's entire bill, which the administration is sending to Congress Monday evening.It's worth noting that a deduction phase-out is actually worse than a marginal tax hike. Deduction phase-outs amplify other rate increases--depending on how they're structured, a deduction phase-out can actually mean that you make less money at $251,000 than $249,000.
The chief provision announced by Lew would be to limit itemized deductions for individuals who make more than $200,000 a year and families that make more than $250,000, something the Obama administration has previously pushed to do through its budget proposals. Lew told reporters at the White House press briefing that this would raise about $400 billion.
The administration would tax the income investment fund managers make, known as "carried interest," as regular income instead of as capital gains, which has a low 15 percent tax rate. This is another longstanding administration goal that has been resisted by Wall Street as well as some Democrats.
The administration estimates the capital gains change would provide $18 billion in revenue.
The administration also wants to eliminate tax breaks for the oil-and-gas sector, which would raise $40 billion, the administration said.
Another $3 billion would come from changing the way corporate jets depreciate. With a few other revenue increases, Lew indicated the total measures proposed by the administration would bring in $467 billion, $20 billion more than the cost of the bill.
This paper investigates the impact of changes in the level of taxation on economic activity. The paper uses the narrative record ñ presidential speeches, executive-branch documents, and Congressional reports ñ to identify the size, timing, and principal motivation for all major postwar tax policy actions. This narrative analysis allows us to separate revenue changes resulting from legislation from changes occurring for other reasons. It also allows us to further separate legislated changes into those taken for reasons related to prospective economic conditions, such as countercyclical actions and tax changes tied to changes in government spending, and those taken for more exogenous reasons, such as to reduce an inherited budget deficit or to promote long-run growth. We then examine the behavior of output following these more exogenous legislated changes. The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. The large effect stems in considerable part from a powerful negative effect of tax increases on investment. We also find that legislated tax increases designed to reduce a persistent budget deficit appear to have much smaller output costs than other tax increases.
Of course, you can still argue that the bill will provide some stimulus, because maybe the stimulative multiplier on payroll tax cuts for the middle class is higher than the contractionary multiplier of tax hikes on the affluent. I might even agree with you. But why would you want a stimulus that relies on the delta between two fairly similar multipliers, when you could get much more stimulus by borrowing the money this year, and paying it back later, when we're richer? No matter how you look at it, unless these tax cuts happen well into the future, structuring the bill this way means that it will be much less stimulative than it could be.