In a depressingly familiar scenario, President Obama and his Washington Media chorus are singing the tired ol’ Beltway song that the only way to close the federal deficit is by raising tax rates on the wealthy. Never mind that the $160 million in extra revenue is a small fraction of Obama’s $1-trillion-a-year deficits. Never mind that major hikes on the capital gains and dividend taxes will depress growth and bring in less revenue. Never mind that Obama’s budget is really a sop to his wealthy friends by offering preferred special interests like green companies large tax breaks.
In Michigan, meanwhile, Governor Snyder is testing the Boehner Republican solution – steady tax rates while broadening the base by closing special interest loopholes – to good measure. Indeed, Snyder’s plan mirrors successful, pro-growth federal tax reform of the last 30 years.
Snyder’s 2011 tax reform lowered business taxes and kept income rates nearly flat while closing loopholes for pensioners as well as corporate fat cats with Big Hollywood and Big Green. This year the state is projected to see revenues increase $300 million more than expected, according to The Detroit News.
And while Snyder expects the lower business tax to decrease revenue in the near term, the common sense expectation is that it will ultimately increase tax revenues by attracting more business investment to the state. This would be consistent with the federal tax reform experience.
“Every major marginal rate income tax cut of the last 50 years-1964, 1981, 1986 and 2003-was followed by an unexpectedly large increase in tax revenues, a surge in taxes paid by the rich, and a more progressive tax code,” reports The Wall Street Journal. “For example, from 1980 to 2007, three tax rate cuts brought the highest marginal tax rate to 35 percent from 70 percent. Congressional Budget Office data show that when the tax rate was 70 percent, the richest 1 percent paid 18 percent of all federal income taxes. With the rate down to 35 percent in 2008, the share of taxes paid by the rich doubled to 40 percent” as upper-incomes stopped sheltering income and invested it in the economy.
The ivory-tower cloistered Obamedia ignores this inconvenient historical truth, instead parroting the Obama line that he has an election mandate to raise income tax rates.
This is more misreading of history.
In truth 2012 was a “status quo election in which both (Obama) and the Republican majority in the House were re-elected,” as Speaker Boehner noted in December 3rd letter to the president that again offered to meet him halfway with tax and entitlement spending reform – both modeled on the Obama-commissioned Simpson-Bowles plan.
Obama has responded by biting Boehner’s outstretched hand. But this is not what he promised just a few short weeks ago in the fall campaign. “He’s eager to ‘meet’ the deficit-reduction target of the Simpson-Bowles commission,” reported Fred Barnes on November 1, a week before the election. “He’s ‘confident’ he can reach a ‘grand bargain’ with Republicans on taxes and spending. To get it, he promises to be breathtakingly bipartisan. ‘I’ll wash John Boehner’s car,’ he told a radio interviewer. ‘I’ll walk Mitch McConnell’s dog.’”
Instead, Obama has reverted to his ram-Obamacare-down-their-throats partisanship of the last four years. It is not only disingenuous – but as the Reagan and Snyder tax reforms suggest, it is bad economic policy.