LAMBRO: Obama’s old class-warfare game

President calls for tax hikes on a struggling economy - again

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With the economy at a virtual standstill, President Obama is trying every desperate trick he can to distract voters from his failures on the issues that matter: economic recovery and jobs.

On Monday, he was trying to resurrect his previously rejected plan to kill the Bush tax cuts for those Americans earning more than $250,000 a year. Congress already has dismissed this idea, even when Democrats controlled both chambers, but Mr. Obama is trying every crafty maneuver he can to avert voter attention from last week’s mediocre job numbers.

This time, Mr. Obama has decided to play a game of chicken with Congress at the end of the year when all of the Bush tax cuts are due to expire. This is the “fiscal cliff” that economists say could push the sluggish economy into another recession if all the tax rates rise to their previous levels at the end of December.

It’s not far from that now, with the Obama economy growing last year by a pathetic 1.7 percent and a weak 1.9 percent in the first three months of this year. Slow economic growth means slower job growth, and we’re seeing it now with three straight months of puny job creation numbers and a persistent 8.2 percent jobless rate.

But instead of addressing this bleak economic reality, Mr. Obama decided to play the old class-warfare game again. He announced that he would support a one-year extension of Mr. Bush’s low- and middle-income tax cuts, but not for any higher tax brackets. And the White House warned that if Congress sends him a bill that extends the tax cuts for all income levels, he will veto it.

Mr. Obama’s threat to let all of the tax cuts rise if he does not get his way left Democrats on Capitol Hill scratching their heads. With not quite four months to go before Election Day, why raise the specter of an across-the-board income tax hike for everyone?

No one in Congress thinks it will act on the expiring tax cuts before the election, but Mr. Obama was playing a card that only heightens the uncertainty about the economy’s future. It is this uncertainty about fiscal policy that has been holding the economy back, suffocating needed capital investment and expansion.

At the same time, Mr. Obama’s latest threat is one of the biggest flip-flops in a presidency noted for its flip-flops. Since he assumed office in January 2009, he has made killing the two top Bush tax cuts an obsession, and he went toe-to-toe with Republicans in 2010 over the issue.

In the end, when the invisible “summer recovery” never materialized and Republicans took control of the House and six seats in the Senate - and even Democrats said “this is no time to raise taxes” on a still-weak economy - Mr. Obama caved. He agreed to extend the Bush tax cuts for two more years, acknowledging that higher taxes would hurt the fragile economy.

Now, with the economy once again slumping and flirting with recession, Mr. Obama is calling on raising taxes on small businesses, investors, retirees who live off capital gains and dividends, and millions of other Americans who do not consider themselves rich.

But many economists, and some Democrats on Capitol Hill, say an extension of all the Bush tax cuts is called for in a still anemic economy, at least until a full-scale, rate reform can be enacted. Raising taxes now on anyone is out of the question.

Here’s what would happen if Mr. Obama were to let the tax cuts expire at the end of this year:

The 10 percent income tax rate for low-income earners would return to 15 percent; the 25 percent rate would jump to 28 percent; the 28 percent would rise to 36 percent; and the top 35 percent would rise to nearly 40 percent. That’s only the beginning.

The marriage penalty against two-earner couples would rise sharply. Families would see the $1,000 per child tax credit shrink to $500, and the 15 percent tax on dividends and capital gains would increase to 20 percent or more.

Letting these tax cuts expire at the end of December would be a massive body blow to an economy that has never really recovered and that is still in terrible shape.

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