Bowles-Simpson Raises Taxes on the Super-Rich More Than Obama

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Some rich people accuse Obama of class warfare while they praise the bipartisan deficit commission. Do they realize that the latter raises taxes more on the top 0.1%?

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(Reuters)

Pop quiz, hotshot. Which fiscal cliff plan raises taxes on the rich more, President Obama's or Bowles-Simpson?

The answer is ... both. Obama's plan increases taxes more on the top 1 percent, but Bowles-Simpson increases taxes more on the top 0.1 percent. The chart below breaks down the top-end tax increases in the Obama and Bowles-Simpson plans over the next ten years. There's $1.36 trillion in new revenue for Obama and $1.253 trillion for Bowles-Simpson from the top 1 percent, versus $753.6 billion in new revenue for Obama and $834.6 billion for Bowles-Simpson from the top 0.1 percent. That's the difference between class warfare and super-class warfare.*

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Here's a quick refresher on what the Obama and Bowles-Simpson plans would do for high earners. The president's plan would bring back the Clinton-era level rates of 36 and 39.6 percent for the top two brackets -- kicking in at incomes of $250,000 and $398,350, respectively -- and limit the value of their tax deductions to 28 percent. (Remember, deductions are currently worth more to higher earners because of their higher tax brackets). Then it would raise the capital gains tax from 15 to 20 percent -- which is really a 23.8 percent rate when you include the Obamacare surtax -- and tax dividends as ordinary income. Add it all up, and it's roughly $1.6 trillion in new revenue over the next decade, all from the top 2 percent of households. 

Bowles-Simpson raises far more in overall taxes, but it raises about as much from the wealthy. Nearly half of the $2.6 trillion it would bring in over a decade would come from the top 1 percent, and it does that while cutting the top marginal rate to 28 percent. It's not magic. It's fundamental tax reform. (This is the part where you mutter something about lowering rates and broadening the base). Bowles-Simpson would pare or eliminate nearly every tax expenditure. They would turn the mortgage interest and charitable deductions into 12 percent credits so they wouldn't be worth more to richer households, phase out the employer healthcare exemption entirely by 2038, end the tax-free status of municipal bonds, limit tax-preferred retirement contributions and, oh, get rid of everything else. That's a lot of base-broadening, but the big change, at least when it comes to progressivity, is their plan to tax capital gains and dividends as ordinary income -- in other words, at 28 percent. That's quite a tax hike for the top 0.1 percent, who earned half of all capital gains in 2011. But there's a caveat. This assumes that Bowles-Simpson actually could end the exclusion of capital gains at death, which would do a lot for progressivity and revenues, but is towards the "not" end of the politically possible spectrum. This is how you get a plan that's more HENRY (high-earner-not-rich-yet) friendly, and less plutocrat friendly.

Now, there are plenty of reasons for CEOs to like Bowles-Simpson despite its higher taxes. It cuts entitlements how they like to cut entitlements. In other words, it raises the retirement age and uses less generous measures of inflation when it calculates benefits -- never mind that Social Security isn't a driver of long-term deficits. It also raises taxes significantly on the middle class, which the rich might like because it doesn't make them feel like they're being singled out.

But it shows how little anybody knows what's actually in Bowles-Simpson that Obama's plan to tax the rich is seen as soaking them and Bowles-Simpson is not, despite raising almost as much money from the top 1 percent -- and doing it more progressively! What's the matter with the Upper East Side? Maybe Fix the Debt needs to fix its false consciousness? Or at least realize that Obama doesn't want to punish success any more than a pair of swashbuckling centrists do.

*(Note: I got my numbers for the Obama plan from this Tax Policy Center distributional table of his 2013 budget, which is basically the same as his fiscal cliff plan, and got the Bowles-Simpson numbers from page 32 of their final report).

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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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