Thanksgiving is over, and the fiscal cliff is back on the table. Here in Georgia, Sen. Saxby Chambliss’s public feud with tax-pledge champion Grover Norquist made headlines and ramped up speculation about which Georgia Republican(s) might challenge our senior senator when he’s up for re-election in 2014.
But if there’s going to be a deal on taxes and spending before we start going over the cliff in January, our newly re-elected president will play the most prominent role. I’ve previously written about how the GOP-led House might try to maneuver with Obama. Now Greg Mankiw, a Harvard economist and former adviser to both George W. Bush and Mitt Romney, uses an op-ed in the New York Times to imagine how the president’s internal debate might be going from two perspectives: the committed liberal his critics contend he is, and the pragmatic moderate his supporters believe him to be.
The entire article is interesting and worth a read, but I’m going to highlight one section that isn’t getting much attention in the discussion of how taxes might be reformed:
MOD: According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we’d raise $749 billion in tax revenue over 10 years. And 96.2 percent of the extra revenue would come from the top fifth of taxpayers, with 79.9 percent from the top 1 percent.
LIB: I have a couple of concerns about that.
LIB: First, if you limit deductions, people in high-tax states will be hit particularly hard, because state and local taxes are deductible.
MOD: Isn’t that fair? I don’t see why states and towns that choose to have very high taxes should be subsidized by everyone else.
LIB: These states generally have liberal agendas, which I want to encourage, not penalize. And many of them, like New York and California, vote Democratic. After they helped us win such a great victory, I don’t think we should be asking our allies to bear a disproportionate share of the burden. (Emphases and links original.)
Some context: In February, the Congressional Budget Office estimated that the deduction for state and local taxes represents about 0.3 percent of gross domestic product per year. Only four deductions were larger. In a $16 trillion-a-year economy, 0.3 percent equals $48 billion.
– By Kyle Wingfield