Obama’s “new ideas” likely well-worn tax proposals

President Barack Obama stuck to his script on Wednesday that he wants taxes on the richest 2 percent of Americans to rise, but said he was open to new ideas to raise new revenues.

If Republicans or Democrats "have a great idea for us to raise revenue, maintain progressively, make sure the middle class isn't getting hit, reduces our deficit, encourages growth, I'm not going to just slam the door in their face," Obama said at his first news conference since his re-election last week.

What could those new ideas be? Probably not new ones at all at all, but a familiar set of proposals floated by Mitt Romney, the Republican he defeated in last week's election, and by Obama himself, in his budget proposals, including the one for fiscal year 2013.

That document, which sought about $1.5 trillion in new revenue, was declared "dead on arrival" on Capitol Hill – along with virtually every other legislative proposal – when it landed there last winter during election season.

But it is being resurrected by the Obama administration as a framework for negotiations with Republicans to avoid the "fiscal cliff" of steep tax increases and indiscriminate budget cuts set to take effect the beginning of next year.

The long-held Democratic position on individual tax cuts expiring at the end of the year for all Americans is that the rates for the top 2 percent – now set at 33 and 35 percent, should be lifted to their 1990s' levels of 36 and 39.6 percent.

In addition to raising tax rates on the wealthy, Obama's budget would have curbed their deductions to 28 percent of income from the current maximum of 35 percent.

It would have raised capital gains tax rates to 20 percent from 15 percent, and the dividend tax rate to nearly 40 percent from 15 percent, both for households making more than $250,000 a year.

He also proposed trimming corporate tax benefits for oil companies, multinational companies, private equity firms and others.

The 28 percent cap, along with other ideas, fell flat in part because of their impact on charitable giving and the mortgage interest deduction, two of the biggest individual tax breaks.

Romney also at one point suggested capping itemized deductions at various levels, the highest being $50,000 a year.

That could raise about $800 billion over a decade, according to the Tax Policy Center.

Eighty percent of the pain of such cuts would hit taxpayers making more than $1 million.

Such a broad swipe at tax deductions would be a "radical" proposition for either party to swallow, said Alan Viand, an economist at the conservative think tank, the American Enterprise Institute.

Still, he said, "Depending how much revenue is desired, limiting deductions could work."

MATH DISPUTE

But while leaving a door ajar at his news conference Wednesday, Obama was not letting any particular new idea stroll through it.

He generally dismissed Republican suggestions that closing tax loopholes and other breaks for the rich could solve the problem.

"The math tends not to work," he said.

The challenge of raising revenue on the wealthy to pare the federal deficit, which has topped $1 trillion in recent years, was a centerpiece in the presidential campaign.

Obama's remarks came two days before his first post-election talks with congressional leaders to avoid the fiscal cliff.

If they follow past negotiations, all sorts of ideas from the past will be open for discussion.

Earlier in the news conference, Obama said he was heartened by recent Republican pledges to raise new revenue, but also said, "When it comes to the top 2 percent, what I am not going to do is extend further a tax cut for folks who don't need it which could cost close to a $1 trillion."

Last year, some Democrats suggested a threshold of $1 million for raising rates, so such a proposal could conceivably get bipartisan support.

It might also help Obama to be able to invoke Romney's ideas – or some variation of them – in support of a tax compromise, since so many congressional Republicans went on record supporting them during the election campaign.

© Copyright 2012 Thomson Reuters. 

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