President Obama's Budget - Some honesty about taxes (finally)

[EraOfResponsibility]

February 27, 2009
Editorial
President Obama’s Budget: Some Honesty About Taxes — Finally
President Obama’s first budget recognizes what most of Washington has been too scared or ideologically blind to admit: to recover from George W. Bush’s reckless economic policies, taxes must go up.

Mr. Obama’s blueprint, released on Thursday, commits to cutting by more than two-thirds, by 2013, the $1.75 trillion budget deficit that Mr. Bush dumped on the nation.

A credible pledge to reduce the deficit is imperative. Without it, foreign lenders — who financed the Bush-era deficits and are now paying for the stimulus and bailouts — could lose faith in the nation’s ability or willingness to repay in anything other than rapidly depreciating dollars. That would send interest rates up and the economy down, the worst-case scenario. Controlling the deficit is also necessary to sustain a recovery — when it comes.

The collapse of the Bush-era economy is ample and awful evidence of the folly of unconstrained debt-fueled growth. The Obama administration has acknowledged the need for deficit spending to stimulate the economy but has vowed that unpaid-for government will not become the norm. Judging from the blueprint, Mr. Obama is not just talking the talk.

A lot of the projected budget improvement is premised on economic recovery beginning in 2010, which may or may not happen. But much of it is premised on raising taxes. The proposed increases signal a serious attempt to tame deficits in a way that restores fairness to a tax code that has for too long been tilted in favor of the wealthiest Americans, resulting in budget shortfalls that disproportionately burden everyone else. At the same time, Mr. Obama has proposed a separate, targeted increase to help pay for health care reform in a way that doesn’t dig a deeper budget hole.

All of the proposed increases apply to couples making more than $250,000 ($200,000 for single taxpayers) — about the top 3 percent of taxpayers. None are big enough to derail an economic recovery. And contrary to Republicans’ knee-jerk protests, they impose no outsize burden on small businesses: Most sole proprietors and other small-business owners do not make anywhere near a quarter-of-a-million dollars a year.

To combat deficits, Mr. Obama proposes to let Mr. Bush’s high-end tax cuts expire in 2011, raising the top rate from 35 percent to as high as 39.6 percent. He would also impose a 20 percent rate on investment income, up from the current super-low 15 percent. And he would reinstate a tax provision enacted by the first President Bush, but undone by his son, that limited tax write-offs by high-income taxpayers for dependents and other expenses, like mortgage interest on vacation homes.

The proposal also calls for taxing private equity partners just like the rest of us. Under current law, multimillionaire buyout mavens pay tax on much of their income at about the lowest rates in the tax code. Under the Obama budget, their earnings would lose favored status and be taxed as the ordinary income of ordinary mortals.

No one who really believes in fiscal responsibility could object to the proposed tax increases. And yet, each one presages a political fight. At issue is not only the tax burden on the wealthiest Americans or election-year debates, but the real-life difficulty of weaning people hooked on unsustainable debt — whether it is unpaid-for tax breaks or over-leveraged buyouts or junk mortgages. It’s a challenge avoided for too long.

http://www.nytimes.com/2009/02/27/opinion/27fri1.html?th&emc=th