President Obama hit the road this week to build national support for increasing taxes on wealthy Americans. On Monday the president addressed autoworkers in Redford, Mich., outlining his budget proposal and explaining why higher tax rates were necessary at this critical juncture.
"Our economic success has never come from the top down," Obama said. "It comes from the middle out; it comes from the bottom up."
Raising taxes on the top 2% of U.S. households has been a controversial topic as the "fiscal cliff" negotiations drag on in Washington. The "cliff" refers to the billions of dollars in spending cuts and tax increases that are scheduled to take effect early next year. Obama has not relented on his campaign pledge to let the Bush-era tax cuts expire for individuals earning at least $200,000 a year ($250,000 for families). Obama says his proposal would not affect the tax rates of 98% of Americans and his recommended tax hikes on the rich would not touch the first $250,000 of income.
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Republicans have long opposed raising taxes on any income group. Some GOP members have expressed a willingness to compromise on taxes if the president agrees to significant cuts in social programs such as Medicare and Social Security. The president and House Speaker John Boehner have been working together to find a resolution to the fiscal crisis. The two conferred on the phone Tuesday after meeting face-t0-face in the Oval Office over the weekend. Both the president and Boehner are under extreme pressure to resolve their budget differences before Dec. 31.
Obama says increasing tax rates on high-income earners would not only flatten the tax code but also raise government revenues at a time when the nation faces a $16 trillion deficit. Opponents of Obama's proposal contend that higher taxes reduce economic growth. According to Boehner, "We've seen over the last 30 years that lower marginal tax rates have led to a growing economy, more employment and more people paying taxes."
David Cay Johnston, Pulitzer prize-winning journalist and author of The Fine Print: How Big Companies Use "Plain English" to Rob You Blind, says higher taxes can actually create jobs, not kill them. In an interview with The Daily Ticker, he argues that additional revenue collected from higher taxes could be spent on infrastructure repairs and construction, a win-win situation for the nation and workers.
"We have this enormous infrastructure failure in our country," Johnston says. "We have a grade of 'D' for almost all of our infrastructure."
Less than 3% of GDP goes toward infrastructure spending in the U.S., Johnston notes, compared to 9% in China and 5% in Europe.
Johnston also supports higher taxes on the rich and says empirical evidence on the impact of low tax rates on the economy are overwhelmingly in favor of the president's proposal.
"Government revenues are down and total income for the bottom 90% of Americans has fallen back to 1966 levels," he says. Wealthy Americans are paying a larger share of their incomes in taxes "but their incomes have grown much more significantly so their share of income going toward taxes has fallen," Johnston says. "Of all the income gains in this entire country in 2010, 37 percent of it went to 15,600 households out of 156 million."
Taxes will likely rise for all Americans if lawmakers are truly serious about tackling the deficit, according to Johnston.
"If you're concerned about deficits, you need to bring in more money," he says. The economy may be too "delicate" to let the Bush tax cuts expire for lower income individuals right now Johnston concedes, but "as the economy gets stronger, there will need to be adjustments."
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