President Barack Obama, setting up another clash with Republicans, will propose on Monday $1.5 trillion in new taxes aimed primarily at the wealthy as part of a deficit reduction plan.
Mr. Obama’s plan has little chance of passing Congress, where Republicans control the House of Representatives. Republicans staunchly oppose any tax increases and want greater spending cuts to reduce America’s debt.
But the populist pitch could offer political benefits ahead of next year’s elections. The plan could appeal to Americans, many of whom believe the deficit can’t be reduced by spending cuts alone, according to some polls. It could also energize Obama’s fellow Democrats, who have been clamouring for the President to take a tougher stance against Republicans.
The core of the President’s plan totals just more than $2 trillion in deficit reduction over 10 years. It combines the new taxes with $580 billion in cuts to mandatory benefit programmes, including $248 billion from Medicare, the health insurance program for the elderly.
The administration also counts savings of $1 trillion over 10 years from the withdrawal of troops from Iraq and Afghanistan.
In a defiant note, administration officials made clear Sunday that Mr. Obama would veto any Medicare benefit cuts that aren’t paired with tax increases on upper-income people.
Many liberals have criticised Mr. Obama as being too quick to yield to Republican demands in previous tax and spending fights. He needs the enthusiastic support of the Democratic base as he faces a tough re-election campaign, with unemployment hovering around 9 percent and his popularity falling.
The deficit reduction plan represents an economic bookend to the $447 billion in tax cuts and new public works spending that Mr. Obama has proposed as a short-term measure to stimulate the economy and create jobs. He’s submitting his deficit fighting plan to a special joint committee of Congress that is charged with recommending deficit reductions of up to $1.5 trillion over 10 years.
Republicans were already lining up against the President’s tax proposal before they even knew the magnitude of what he intended to recommend.
“Class warfare may make for really good politics but it makes for rotten economics,” Paul Ryan, chairman of the House Budget Committee chairman, said Sunday in reaction to one Obama tax proposal to impose a minimum tax rate on wealthy filers.
Former President Bill Clinton on Monday dismissed Republican claims that the tax on the wealthy would discourage jobs creation and hamper economic growth.
“Republicans in Washington always say the same thing,” Ms. Clinton said on NBC ’s Today show. He called their argument an insult to wealthy Americans, including many who don’t mind paying more.
One of Mr. Obama’s proposals would set a minimum tax on taxpayers making $1 million or more in income. The measure — Mr. Obama is going to call it the “Buffett Rule” for billionaire investor Warren Buffett — is designed to prevent millionaires from taking advantage of lower tax rates on investment earnings than what middle-income taxpayers pay on their wages.
At issue is the difference between a taxpayer’s tax bracket and the effective tax rate that taxpayer pays. Millionaires face a 35 per cent tax bracket, while middle income filers fall in the 15 or 25 per cent bracket. But investment income is taxed at 15 per cent and Mr. Buffett has complained that he and other wealthy people have been “coddled long enough” and shouldn’t be paying a smaller share of their income in federal taxes than middleclass taxpayers.
