Of all the matters before President Obama, his top task is to deal with an increase in taxes starting at the end of the year. The President wants the tax cuts for the rich to end and the tax cuts for the middle-class to remain.
Raising the tax rates of wealthy earners – the percentage of income people pay to the government – is the President’s goal. For example he wants people who earn over $250,000 a year to pay about 39 percent of their income in taxes. They pay about 35 percent today.
Most Republicans feel differently. They agree the government needs more revenue. However, they say raising tax rates is not the answer. They believe it will hurt economic growth and job development.
Republicans also want to limit the amount of money that tax payers can deduct from their income before paying taxes. They believe “capping” deductions will result in more taxable income. For example, millions of people deduct the interest paid on mortgages or the amount they pay for property and local taxes.
Democrats say “capping” will not result in enough revenue to reduce the nation’s annual budget deficit. Republicans say the same thing about raising tax rates.
This is part of what the “fiscal cliff” is about. Tax increases and cuts in government spending will happen at the end of the year, about seven weeks from now.