The White House wants Republicans to agree to tax increases that no one wants to call tax increases, and for an insight into this political method let’s focus on one proposal in particular—the phase-out of itemized deductions for upper-income taxpayers. We hope the tea party is paying attention, because this kind of maneuver is why people hate Washington.
The idea is that once taxpayers earn a certain amount of money (say, $200,000), they would begin to lose the value of the various deductions they’re entitled to under the law. These include such IRS Form 1040 line items as the personal exemption, the deductions for state taxes and charitable contributions, even those for spouses and children. Earn enough money and soon the value of those deductions goes to zero.
The political point of this exercise is to raise marginal tax rates without appearing to do so. The top statutory individual rate would remain at 35%, so the politicians could claim they hadn’t raised rates. But for those losing their deductions, the marginal rate would increase by between one and two percentage points until the phase-outs were complete.