You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Obama's Noble, Doomed Ransom Offer

What kinds of tax increases are Democrats demanding in the debt ceiling negotiations? Some pretty low-hanging fruit:

Among Democrats' revenue proposals is a change to a common method for valuing businesses' inventories called last-in-first-out, or LIFO.
Under this method, manufacturers can estimate the cost of the goods they've sold at their most recent market prices, even if they purchased the goods at lower prices. An oil company could value the oil it sells at roughly $100 a barrel, for example, rather than $80 a barrel as it may have cost several years earlier. Being able to calculate higher expenses makes a company's taxable income smaller.
Democrats are proposing to increase the amount of income subject to tax, a move fiercely resisted by many businesses.
Another Democratic proposal would limit the itemized deductions that wealthier Americans can claim on their tax returns to a certain percent of their income. Depending on how strict the limit is, that could generate $300 billion more revenue over 10 years.
Democrats are also pushing to end oil company subsidies and ethanol tax breaks, though the ethanol subsidy is already scheduled to end this year.
Democratic leaders also are targeting repeal of the carried-interest break for investment-fund managers, despite repeated failures to eliminate it in recent years. The break allows managers of hedge funds, private-equity funds, venture-capital funds and some others to pay the 15% income tax rate applied to investment income, rather than higher income tax rates. This time around, in order to maximize the issue's political appeal, Democrats are likely to target hedge-fund managers, while sparing other beneficiaries.

This all sounds like good policy, and the trade-off is a no-brainer when you consider the alternatives on the table. But I really don't understand how the Obama administration thinks it's going to get GOP sign-off here. It's true, their plan does not raise marginal tax rates. And if you take conservative economic rhetoric at face value, Republicans should be fine with proposals that reduce market distortions and reduce the deficit without increasing the disincentive to work.

But taking that rhetoric at face value is crazy. The Republicans are going to oppose any plan that makes rich people pay more money, regardless of the economic merits. They've been defending tax loopholes for a very long time.

It's great that the administration is proposing to close these tax loopholes. Given that Republicans would almost certainly never voluntarily accede to close them, though, what's plan B?