Tricky, Tricky Mr. Obama

Written by David Frum on Wednesday February 25, 2009

Today the Obama administration let loose two big exploratory ideas in a first (but surely not the last!) nervous attempt to wring more revenues out of a distressed economy.

Idea 1: Use the revenues generated by cap and trade to pay for health care tax credits for lower-income people.

Idea 2: Disallow about 25% of itemized deductions for upper income taxpayers.

What do these ideas have in common?

First, they are very sneaky.

Idea 1 for example is being labeled an attempt to shift tax collection from individuals to corporations. It’s nothing of the kind! Taxes on carbon emissions do not fall on “corporations.” They fall on users of electricity.

Idea 2 amounts to a concealed attempt to push the top rate of tax past the 39.6% that prevailed in the 1990s. It’s a violation of Obama’s campaign promise to return to
Clinton rates, but no higher.

Second, they are likely to prove ineffective.

Idea 1 only generates revenue if American utilities emit more carbon in future years than they have done in past years – in other words, if cap and trade fails to produce any new efficiencies. That seems unlikely.

Idea 2 rolls back the home mortgage deduction and the state and local property tax deduction for high-income taxpayers. It will create further incentives for upper-income people to migrate from high-tax, high-cost states like
California to states with lower taxes and cheaper housing, like Texas.

Third, in an attempt to raise taxes without acknowledging the fact, both ideas introduce costly new complexity into American economic life. Cap and trade is a worse idea than a carbon tax. Less lucrative too. The only merit of cap and trade is that it enables the government to collect revenue without admitting that a new tax has been imposed. Likewise, the roll back of deductions empowers accountants and tax-shelter specialists – creating costs to society likely to dwarf the revenues collected, again only in order to enable the government to deny that it has raised tax rates.

I’ve been traveling the country promoting my new book on politics, Comeback.

More and more though I’m wondering if the book most relevant to the present moment is not my history of the 1970s …. We certainly seem to be heading back that way!
Category: News