President Obama is going big.
Last year, in failed negotiations with Republicans, he reportedly sought to raise $800 billion in new revenue from taxes over 10 years, to help reduce the national debt. Now he's doubling down, aiming to raise $1.6 trillion over a decade, according to news reports. A convincing electoral victory apparently broadens one's ambitions.
Obama's tax target, needless to say, is bound to produce a big fight with Congressional Republicans, who still consider it their mission to serve as the last line of defense against a ravenous tax collector. But Obama's tax target may not be as hard to reach as it sounds. Since Obama's spreading out his revenue target over a decade, it would amount, for simplicity's sake, to about $160 billion worth of additional tax revenue per year. A tax hike of that magnitude would only represent a 5.5 percent increase in the amount of revenue the federal government takes in.
The looming "fiscal cliff" includes $536 billion worth of annual tax hikes that would take effect starting in 2013, if Congress does nothing and simply allows changes already on the books to take place. So Obama's target is roughly one-third of tax hikes that are supposed to happen anyway.
The presumption, of course, is that Obama and his fellow politicians on Capitol Hill will intervene to prevent tax hikes on most Americans, who are unprepared for a hefty increase in their tax bill. But there are at least nine different sets of taxes due to rise at the end of the year, which gives politicians the chance to phase in a few of them, while scaling back others deemed more disruptive to the economy. Here are the biggest of the pending tax hikes, along with the amount of revenue they'd generate in 2013, according to the nonpartisan Tax Policy Center:
- Return of middle-class tax rates to Clinton-era levels: $171 billion in new revenue
- Expiration of the 2009 "temporary" payroll tax cut: $115 billion
- Expiration of various "temporary" tax cuts that usually get renewed every year: $75 billion
- Return of upper-income tax rates to Clinton-era levels: $52 billion
- Expiration of the "AMT patch," which usually gets extended every year: $40 billion
- Scheduled increase in estate taxes: $31 billion
Obama says that his top priority is leaving tax rates where they are for households with incomes below $250,000, which would rule out the biggest set of tax hikes, worth $171 billion. But many analysts expect the payroll tax cut, which was passed in 2009 and has already been extended once, to expire as scheduled.
That tax break lowered the payroll-tax withholding on most people's paychecks from 6.2 percent to 4.2 percent. And it was never meant to be permanent. Since that withholding helps fund Social Security—which has many stout defenders on Capitol Hill, of both parties—there's a strong case for letting the withholding rate spring back to its standing rate of 6.2 percent.
That would net Obama $115 billion, leaving him about $45 billion short of his annual goal of $160 billion in new tax revenue. Suddenly the math gets easier. Obama would prefer to let the top two tax brackets rise to their Clinton-era levels of 36 percent and 39.6 percent, which would net $52 billion, putting him past his target. But he can get there in other ways, through a selective mix of tax hikes in other categories.
Another possibility is to close many of the loopholes that allow taxpayers to significantly lower their tax bills. Altogether, deductions, tax credits and other loopholes amount to about $1.1 trillion worth of revenue annually that the government doesn't collect. Some of those tax breaks, such as the earned-income tax credit, benefit low-income families Obama is inclined to protect. But high earners tend to claim the most tax breaks by far, with those who earn more than $250,000 claiming an average of $130,000 in deductions each year. Mitt Romney, as one example, claimed $4.7 million worth of deductions on his 2011 tax return.
So coming up with $160 billion worth of new tax revenue each year isn't mathematically difficult, as Obama likes to say. The political battle is another matter. The test now is whether the re-election enhanced Obama's negotiating skills, along with his ambitions.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.