There’s a solid argument that limiting high earners’ deductions could raise $800 billion or more. A $25,000 cap on deductions, according to The Wall Street Journal, would yield almost $1.3 trillion of additional revenue. The Simpson-Bowles commission showed that broadening the tax base could net $1.1 trillion.
And there’s a solid argument that raising tax rates on high earners, in conjunction with the increase that’s part of Obamacare, would slow down economic growth. That’s because many small businesses are taxed at the individual income tax rate.
Obama once accepted that argument, albeit reluctantly, when he temporarily abandoned his quest for higher rates in December 2010. Raising them, he conceded, would hurt while economic growth was still sluggish.
It’s actually more sluggish today than it was then, although as Obama pointed out in the press conference, we are further away from the sharp economic decline of 2008-09.
In effect, Obama is giving House Republicans a choice between a growth slowdown due to higher tax rates now and the much sharper slowdown that some economists predict — 5 percent is a number bandied about — if we go over the fiscal cliff.