No Compromise from Obama on Bush Tax Cuts, Except Dividends

By / 9.21.2010

President Obama stood his ground on his tax plan during Monday’sCNBC town hall forum, arguing that he can’t make the math work for both keeping the deficit in check and giving away tax breaks to the richest two percent of Americans.  When asked about possibilities for compromise, including cutting rates for households with incomes between $250,000 and $1 million, Obama didn’t flinch and stuck to his talking points.

So it sounds like the President’s position on the Bush tax cuts is one he’s taking to the people on Election Day, rather than taking to the Hill for negotiation and deal-making.  He also brushed off a question about a payroll tax holiday, so it doesn’t sound like that idea will be on the table between now and November either.

Obama did make a strong statement about keeping a portion of the Bush tax cuts that would apply to the wealthiest Americans: reduced rates on income from corporate dividends.  He emphasized that he has proposed a 20 percent cap on both dividends and capital gains taxes

If the Bush tax cuts expire without this change, the highest income brackets would pay 20 percent on capital gains, but dividends would be taxed at marginal rates of 39 percent for the top bracket.  So when Obama mentions this 20 percent cap on dividends, he’s actually proposing a sliver of compromise in the tax cut debate. This appears to be the only part of the Bush tax cuts that he’s willing to extend for the top 3 percent of taxpayers.

I have to think that emphasizing the dividend cuts was one of the key messaging items the White House planned for this forum today.  First, it’s CNBC, so the business and investment audience is going to like the idea.

Second, it’s a cut that Republicans can’t possibly oppose, except as part of their pouting-in-the-corner strategy of demanding all the Bush tax cuts or nothing.

Third and most significant is that this isn’t a new position for the administration, but it’s new that Obama himself is talking about it.

It’s the first time I know of that Obama has really spoken out loud about this issue, even though it was included in hisbudget plan for 2011.  The only time other the administration has said anything about that proposal was when Treasury Secretary TimGeithner mentioned it on CNBC in July.

On the merits, the idea is a good one.  There are some decent arguments for taxing dividends at the same rate as capital gains to prevent the kind of investment bias that might result from taxing one at nearly twice the rate as the other, as I have briefly argued before. And because the bulk of total dividend payments go to those in the top brackets, their tax rates have a disproportionate impact on investment incentives.

Congress has for the most part ignored dividends in the debate about extending the Bush tax cuts, and the administration has done nothing to inject it into the discussion.  Until today, that is.

It will be interesting to see whether the White House actually pursues a legislative push for this cut, or if this is merely defensive posturing without follow-up to appear more business-friendly before a business audience.  Since it doesn’t have any real champions in Congress, my guess is that we may not hear much more about it, unless a prominent member or two decide to latch on to the idea as a moderate position and call the President’s bluff.