In a bid to look tough on Wall Street and close a funding gap for his health care plan, President Obama is considering a range of new tax proposals with far-reaching implications for the economy.
At the top of the list, Obama wants to impose a new fee on the 50 biggest financial firms — to recoup $90 billion in taxpayer bailout money that shored up the once faltering financial sector.
Also under consideration is a plan to extend Medicare payroll taxes to investment income — a move that could mollify labor leaders unhappy with a proposed tax on gold-plated health care plans, but could hurt seniors who rely on investments after they retire.
The administration also is looking at tinkering with the capital gains tax rate — including either raising it from 15 percent to at least 20 percent, or keeping it at 15 percent and subjecting more people to the tax.
The capital gains tax is something Obama has been looking at since he first came to office, saying he could envision raising the tax to between 20 percent and 28 percent.
The move would restore rates to earlier levels before they were lowered by the Clinton and Bush administrations. But a key risk is that raising the tax rate now could dull the markets and slow recovery.
Part of what’s fueling the new enthusiasm for taxes is Obama’s earlier pledge that health care reform would pay for itself. As health care gets closer to passage, it is increasingly clear that new revenue sources are needed to pay for it.
The president initially supported a plan to raise money by taxing plush employee benefits, but has agreed to back off his aims after labor leaders expressed outrage.
Another complication is a campaign pledge that is boxing the president in while he contemplates soaring deficits and massive spending programs heading into the new federal budget season.
“I can make a firm pledge: Under my plan, no family making less than $250,000 a year will see any form of tax increase, not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes,” Obama said in September 2008.
Despite his rhetoric against banks and the imperative to recoup public bailout funds, Obama’s proposed tax on financial institutions won only tepid praise from economists.
“This proposal represents a step forward in getting the big banks to repay the American taxpayers,” said Dean Baker, co-director of the Center for Economic and Policy Research. But, “stronger action will be required to protect the economy from future abuses and recoup more of the public funds used to rescue a bloated financial sector.”
Andrew Redleaf, chief executive officer of investment firm Whitebox Advisors, said a better course of action would be for the administration to focus on structural reform rather than new taxes.
“The risk is that the big banks become like tobacco companies or casinos; the government starts by campaigning to eliminate vice and then finds it’s addicted to the revenue,” Redleaf said.
Others predicted banks would find a way to pass the higher tax burden on to consumers.
