After a Frustrating Tax Concession, Much Friendlier Political Terrain in 2013
So to those of us who want the federal government to tax as little as possible and control its spending, raising taxes on individuals making more than $400,000, or households making more than $450,000 from 36 percent to 39.6 percent stinks. But that 3.6 percentage point tax hike on top earners has been the alpha and omega of Democratic tax increase arguments since, oh, the Bush tax cuts went into effect in 2001.
They kept emphasizing that hiking to that rate couldn’t be economically harmful, because that was the top tax rate during the good old days of the dot-com boom of the late 1990s – as if tax rates were the only factor determining the strength of an economy.
Obama kept emphasizing how he simply wanted to “ask the rich to pay just a little bit more.” (If somebody asks you to give them 3.6 percent of your annual income, ask yourself if you would really see that amount as “a little bit more.”) Inherent in Obama’s approach is an acknowledgement that the argument, “we’re asking the rich to pay a whole lot more, gobs and gobs more in new taxes” isn’t a sure-fire applause line.
So as we head into the debate over raising the debt ceiling, Democrats find themselves without the rhetorical and policy tool that they’ve come to depend upon – almost entirely, when you think about it – for the past twelve years.
“This does settle the issue of rates for individuals,” Rep. Allyson Schwartz (D-Pa.) told POLITICO. “That’s good. That certainty and predictability is one of the gains” of the fiscal cliff legislation.
Michigan Rep. Sander Levin, the top Democrat on the tax-writing Ways and Means Committee, agreed. When asked whether more rate increases are in the offing, he responded, “I don’t foresee that.”
That Politico article goes on to quote Maryland Rep. Chris Van Hollen, the top Democrat on the Budget Committee as saying, “we’ve got to make some cuts going forward, but we also need additional revenue.”
Looks like a pretty slam-dunk counter-argument for Republicans: “Why the hell are you guys talking about raising taxes on the richest Americans again? We just did that at the beginning of the year! We haven’t even reached the annual tax-filing deadline of April 16, and your calcified one-track minds are coming back with the exact same policy recommendations that you insisted would fix the problem before!”
And just think, this debate will occur as everyone in America sees their paychecks get 2 percent smaller (at least on the first $110,000 of income) because of the expiration of the temporary reduction in the payroll tax from 6.2 percent to 4.2 percent. (Here’s one Democratic Underground commenter exclaiming with surprise, “My paycheck just went down by an amount that I don’t feel comfortable with.”)
One of the fundamental reasons that “raise taxes on the rich” is less popular than Democrats want is the public’s well-founded wariness of just what income level constitutes “rich” in the eyes of lawmakers.
Obama is proudly proclaiming that he saved the middle class from a tax hike, and that he only raised taxes on the rich. But since most voters perceive their taxes in aggregate – that is, what’s left on their pay stub after everybody takes their bite – they’ll probably perceive the opposite, that an income-tax hike supposedly targeting the rich made their paychecks 2 percent smaller. Thus, they’ll be even more skeptical than usual, since they’ll think the last tax hike on “the rich” hit them instead.
(By the way, “rich” may be in the eye of the beholder, but I think you’ll find more consensus that a household income of $450,000 or single income of $400,000 annually is a fair definition of “rich” than defining it at $250,000. There are nearly five million households that earn between $200,000 and $500,000 annually.)
Overall, I don’t see a lot of Democratic enthusiasm for further actual tax increases. I see a lot of enthusiasm for “raising taxes on the rich” as a theoretical construct which, like “American exceptionalism”, can be vigorously waved in speeches and then put back in the vault for safekeeping as soon as everyone’s seen that you’re the right sort of person who believes in good things.
The problem, of course, is that Democrats want a big government that does a lot of things. For the past few years there’s been a widening disconnect between the tax cuts that Republicans say they want, and the spending cuts they are willing to actually deliver. Having achieved the tax hikes on the rich that they campaigned on, Democrats are not in exactly the same boat–but it does look pretty similar. They want a big government with a generous welfare state, and a tax base that’s about half the necessary size.
Peter Orzag, President Obama’s former budget director said on CNBC Thursday morning that, “I think the White House in this second-best world won that round, but by not insisting that the debt limit be tied to that package it’s entirely possible they’re going to win the week and lose the quarter. You can’t know yet until you see how February and March play out, and I think there’s no doubt they have somewhat less leverage than they did in the round that just completed.”