Well, this is a bit unexpected. OMB Director Jack Lew strolled into the White House briefing room and laid out the plan to pay for the American Jobs Act, and it’s entirely from ending tax breaks for rich people and corporations.
Among the offsets suggested by Lew:
• New limits on deductions for income over $250,000. This would raise $400b over ten years.
• New formulas for taxing the income of hedge fund managers’ could raise $18 billion.
• Oil and gas measures, Lew said, would raise $40 billion.
• Limiting tax deductions for corporate jets would raise $3 billion.
These steps have all been suggested before by the White House: the limit on deductions was initially part of their plan to pay for the health care bill. And ending carried interest nearly happened last year. This adds up to $461 billion, more than the estimated $447 billion price tag of the American Jobs Act. Most of it is from that deduction limit – the corporate jet inclusion just makes for a nice talking point.
These kinds of pay-fors would be the least harmful to the economy, since they would come at the expense of wealthy people and corporations who would be unlikely to alter their purchasing behavior as a result. If you’re going to pay for the spending over time – and while the AJA has a 1 to 2-year window, the tax offsets are all in a 10-year window, so you’re talking about higher near-term deficits smoothed out over a decade – this would be how you’d do it.
But the vast majority of these pay-fors, including the limit on itemized deductions and ending the carried interest loophole, failed in the last Congress, when Democrats held the House. The proposals are a populist rallying cry, but they’re not the kind of offsets you would propose if you expected the bill to pass.
What this signals is that the American Jobs Act is an aggressively political document: spending money to create jobs, paid for by ending tax breaks for those who can most afford it. It also happens to be the correct move for the economy, but obviously House Republicans are not going to remove themselves as human shields from the rich or corporations. So the bill offers a choice – we can help people get back to work and raise GDP growth, or we can do nothing and allow millions to suffer at the expense of the rich and corporations. That’s certainly an improvement over the fears that safety net cuts would be the price for this improvement in the near-term jobs picture.