South By North Strategies, Ltd.

James Kwak points out an unspoken element of the “failure” of the Super Committee.

To understand the GOP’s victory, consider what the tax landscape would look like if Republicans agreed to everything that Barack Obama asked for in his deficit plan released this September. First of all, taxes for almost all families would hardly change at all. Almost all of the 1997, 2001, and 2003 tax cuts would still be in place. Tax rates for families making less than $250,000 per year would be locked in at the lower rates set in 2001.
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Obama says he wants to roll back the tax cuts for the rich. But as far as I can tell, he only proposes to roll back one of them — the reduction in the top income tax rate. Under his plan, the top tax rate on capital gains and dividends would be made permanent at 18.8 percent — a figure that includes the 15 percent level set by the 2003 tax cut, plus 3.8 percent for the Medicare payroll tax. The estate tax exemption would be $3.5 million, not $1 million as it was before 2001. The Pease and PEP (personal exemption phaseout) provisions that limit deductions and exemptions for high-income taxpayers, which were suspended by the 2001 tax cut, would be killed permanently. As a result, the top marginal tax rate would be down slightly to 43.4 percent (the 39.6 percent level set in 1993, plus 3.8 percent for the Medicare payroll tax).
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How would the government pay for this? Through huge spending cuts.