Elections have consequences. And the big consequence of the 2012 election looks to be higher taxes for the rich. With President Obama still in office, that's what will happen on January 1, 2013 when the Bush tax cuts expire, whether John Boehner likes it or not. The big question is whether Obama and House Republicans can make a deal undoing the rest of the so-called fiscal cliff.
They can. If they listen to Mitt Romney.
Romney got some well-deserved criticism
for his chronically math-challenged tax plan, but he did have a very clever idea when it came to tax reform. Rather than take on specific tax deductions -- and the constituencies ready to defend them -- he would limit overall deductions. Such a cap raises revenue without raising marginal tax rates, and it raises the most revenue from the rich. The chart below looks at how much more each income group would pay under a $50,000 cap, based on the Tax Policy Center's
See the tax changes for people making less than $200,000? Of course not. That's because the Romney's tax plan would hardly raise their taxes. But households making between $200,000 and $500,000? They would pay a couple thousand more in taxes. Millionaires could wind up paying almost a hundred thousand dollars more. This time with a logarithmic scale
The wealthiest households not only pay more than others under the cap, they pay most of the cap. In other words, households making a million dollars or more would pay 73 percent of the $59 billion a $50,000 cap would raise in 2015 if tax rates stay the same. Middle-class households mostly wouldn't get hit because they mostly don't take itemized deductions, and when they do they rarely take anywhere near $50,000 worth of them. Take a look at the chart below to see just how progressive a $50,000 cap would be.
A cap just might be a Republican-friendly way to get what Democrats want. As Greg Ip
of The Economist
points out, a $50,000 cap raises $749 billion over a decade
, which is just about what Democrats would get if the Bush tax cuts for the rich expire
But what about the question that is the bane of all good policy in Washington -- is it politically possible? Well, as Scott Galupo
of the American Conservative
points out, Obama wanted to pay for the failed American Jobs Act by limiting deductions for wealthy households. In other words, you could even say it was Obama's idea before it was Romney's. It's less clear whether Republicans are a hop, a skip and a jump away -- or more. Republicans obviously supported a cap during the presidential campaign, but they have a long history of disavowing their policy ideas once Democrats pick them up -- see Obamacare or cap and trade.
Boehner and the House Republicans have to decide whether they care more about tax rates or tax burdens; about incentives or incomes. Then they should ask themselves, WWMD? What would Mitt do?