President Obama wants to pay for his $447 billion American Jobs Act with a mix of so-called revenue enhancers, mostly by taxing the wealthy.
The president said Monday he hopes the special congressional supercommittee already charged with making $1.5 trillion in cuts to reduce the deficit by Nov. 23 will "overachieve" and consider his proposals to pay for the plan, which is intended to stimulate job creation. Republican reception was cool, with the party's top leaders saying tax increases are unacceptable and job-killing.
Steven Leslie, lead analyst for financial services at the Economist Intelligence Unit, part of the Economist Group, said the measures announced Monday had already been debated before August's deficit reduction plan.
"These are almost exactly like the ones Obama proposed a month ago: shift the tax burden to the wealthy people and close some of these loopholes on corporate airplanes," Leslie said.
The plan includes new limits on deductions for income over $250,000 which the White House says could raise $400 billion over 10 years, oil and gas tax measures which would raise $40 billion and limiting tax deductions for corporate jets which could raise $3 billion.
Office of Management and Budget Chair Jack Lew on Monday also described changes to the taxation of carried interest, raising $18 billion from the income of hedge fund and private equity managers. Billionaire Warren Buffett previously criticized the current policy which he said allows his secretary to pay more in taxes than he does.
The committee, which met for the first time on Sept. 8, holds its first hearing Tuesday. At the hearing, Congressional Budget office director Doug Elmendorf will testify on "The History and Drivers of Our Nation's Debt and Its Threats."
Cato Institute economist Dan Mitchell said the measures were "repackaged" from previous White House proposals, like Dr. Seuss' green eggs and ham. He said he doubts the measures will effectively stimulate the economy.
"As they say in the children's book, 'I do not like them in a house. I do not like them with a mouse. I do not like them here or there. I do not like them anywhere,'" Mitchell said.
Mitchell said the most newsworthy announcement on Monday was that the president was targeting itemized deductions, as opposed to increasing the marginal tax rate. He said most economists across an ideological spectrum agree doing the latter would create the most damage per dollar raised because it affects the incentive to earn additional income.
Mitchell is critical of Keynesian stimulus measures, which use massive amounts of government spending to jump-start the economy. He said such measures didn't work for Presidents Hoover and Roosevelt in the 1930s, Japan in the 1990s, Bush in 2008 or President Obama in 2009.
"It won't work in 2011. All Keynesian measures do is take money from the left pocket and putting in right pocket, creating bureaucracy in between."
"The president is asking the Congress to make choices because…we simply don't have the capacity to pay for everything — to pay for special treatment in the tax code for oil and gas companies which are also making record profits this year, and jobs for up to 280,000 teachers," White House Press Secretary Jay Carney told reporters Monday.
Peter Morici, professor of international business at the University of Maryland and former chief economist with the U.S. International Trade Commission said the tax increases are not likely to pass Congress because of opposition in both parties.
"He is booting a lot to the special committee and they're not going to come up with any immediate cuts acceptable to anybody," Morici said. "He would do is make it more difficult to balance the budget down the road."
Morici said he is waiting to hear how the president will tackle cuts to Medicare and Medicaid. During Obama's speech Thursday, he said he advocated "making modest adjustments to health care programs like Medicare and Medicaid."
"If you do all things outlined here, what good will the jobs plan have? What good would it do to spend more on school teachers and pay less on hospitals?" Morici said.
David Stockman, President Reagan's former budget director, said he agreed on targeting those particular deductions, but more is needed in the greater scheme of the nation's economic health.
"Yes, we should cap deductions for the affluent, cancel tax giveaways to the oil companies and make the hedge fund tycoons pay the same tax rate as their chauffeurs," Stockman said. "But all of that money and much more is needed for deficit reduction…"
Phillip Swagel, former assistant secretary for economic policy at the Treasury Department from 2006 to 2009 and former chief of staff at the White House Council of Economic Advisers, said the proposed limits on tax deductions are already widely understood to be part of the discussion, "so those are not available as new revenue to pay for the President's proposals."
"That money, if there is any agreement on it, would go to the committee's original work. The other proposals are symbolic ones meant to send a partisan message," Swagel, now professor in international economic policy at the Maryland School of Public Policy, said.