The tax rate issue is especially thorny because it doesn’t lend itself to Washington’s favorite tactics for postponing hard decisions. Lawmakers routinely resort to “continuing resolutions” to end budget impasses by keeping spending levels unchanged for yet another year. Politically, no one wins or loses.
Obama’s campaign promise to raise tax rates on the wealthy precludes that. Either rates on the rich will rise and Republicans will absorb defeat on a huge priority, or the rates will remain unchanged, a political defeat for Obama.
Lobbies and the status quo: Both parties have talked, vaguely, of raising revenues by limiting the itemized tax deductions claimed by about one-third of the nation’s taxpayers. Among the most popular deductions are those for charitable donations, health care costs and mortgage interest payments.
Each is represented by muscular lobbying groups that will fight to protect the millions or billions of dollars these tax breaks steer their way.
An array of ideas has been floated. They include capping a taxpayer’s total deductions at $35,000 or $50,000, and limiting the value of deductions to 28 percent, instead of the current 35 percent for high earners. The coalition of universities and other institutions that rely on tax-exempt donations is so influential that some strategists say charitable gifts should be left untouched. The housing industry says the same about home mortgage interest.
“Once you put something on the table, there is enormous pushback all around,” said Rep. Peter Welch, D-Vt. He says going over the fiscal cliff, at least temporarily, may be the only way to force Republicans to accept tax increases and to embolden lawmakers to make painful choices.