President Obama’s deficit-reduction proposal, announced today, includes a new minimum tax for households that make more than $1 million per year. The administration has refused to offer any details as to how the tax will be implemented, but as ABC’s Jon Karl pointed out on This Week, raising taxes on millionaires is hardly a “new idea.” Furthermore, it’s an idea that even Democrats have been loath to enact when they had the chance.
House Democrats initially included a so-called “millionaire’s tax” in their version of the health-care reform bill. In order to pay for the sweeping expansion of the U.S. health-care system that is Obamacare, they proposed a 5.4 percent surtax on household income above $1 million.Ultimately, the idea was rejected by the Democrat-controlled, filibuster-proof Senate. Majority Leader Harry Reid (D., Nev.) dropped the millionaire’s tax in favor of a new excise tax on high-cost, or “Cadillac,” health plans.
But that didn’t mean that Democrats had abandoned their desire to raise taxes on Americans earning more than $1 million. On the contrary, they have continued to champion the measure ever since. During the lame-duck session in December 2010, Senate Democrats staged a series of meaningless “show votes” in connection with negotiations over the Bush tax rates, which were set to expire at the end of the year. One of those votes was on legislation that would have extended the Bush tax rates permanently for all Americans except households earning more than $1 million per year. The measure fell seven votes short of the 60 required to proceed.
Obama’s 2012 budget, released in February of this year, did not explicitly single out millionaires, but a majority of the $1 trillion in tax increases he outlined were aimed at the wealthy. For instance, he proposed letting the Bush rates expire for high earners (more than $250,000 per year), as well as eliminating itemized deductions for the same group and raising the capital-gains tax. Altogether, Obama hoped to collect $636 billion over ten years from “the wealthy.” Now, with his new proposal, he has upped that figure to $1.5 trillion.
In May 2011, the Congressional Progressive Caucus released their own budget proposal — “The People’s Budget” — which included new income-tax brackets for millionaires with rates as high as 49 percent and proposed taxing all capital gains and dividends as ordinary income. Some speculate that Obama’s millionaire-tax plan, which he has called the “Buffett Rule” after billionaire investor Warren Buffet, will involve a similar proposal when it come to capital-gains taxes.
Buffet has publicly complained that, because a majority of his earnings come in the form of investment returns as opposed to salaried income, and because capital gains are taxed at lower rates than normal income, he pays a lower tax rate than his secretary. As outlined in the president’s plan, the “Buffet Rule” states that “no household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay.”
Democrats floated the idea of a millionaire’s “surtax” most recently in July of this year, when the Senate Budget Committee — which has still not produced an actual budget in nearly 900 days — considered including the new tax (3 percent on income over $1 million) as part of its never-published 2012 budget resolution in an effort to win the support of Sen. Bernie Sanders (I., Vt.), an avowedly socialist member of the committee. But the measure was ultimately dropped.
Now, as then, Republicans have resoundingly rejected the idea of a millionaire’s tax as the epitome of “class warfare” politics. Calling for higher taxes on the wealthy, said House Budget Committee chairman Paul Ryan (R., Wis.), “may make for really good politics, but it makes for rotten economics.” “We don’t need a system that seeks to divide people,” Ryan said. “We don’t need a system that seeks to prey on people’s fear, envy, and anxiety. We need a system that creates jobs and innovation, and removes the barriers for entrepreneurs to go out and rehire people.”
Senate Minority Leader Mitch McConnell (R., Ky.) pointed out on Meet the Press that both parties have rejected the idea in the past. “We had that vote a couple of years ago when Democrats basically owned the Congress, they had overwhelming control of the Senate and the House, and it was defeated then,” he said. “So I would simply go back to what the president said last December in signing a two-year extension of the current tax hikes: It’s a bad thing to do in the middle of an economic downturn.”
Now it seems that Obama has blatantly ignored his own advice by calling for $1.5 trillion in new taxes over the next decade. When he announced his recent jobs plan (and his plan to pay for it by raising taxes) in an address to Congress, Obama assured us, “This isn’t political grandstanding. This isn’t class warfare.” Republicans couldn’t help but laugh. Needless to say, the president’s “plan” has no chance of making it past Congress. On the plus side, American voters are beginning to get a pretty clear sense as to the policies that await them should Obama be elected to a second term in 2012.
— Andrew Stiles is the Franklin Center’s 2011 Thomas L. Rhodes Journalism Fellow.