Campaigning on Tax Increases ?!?
Robert Waldmann
For decades, I have been advising Democrats to focus attention on the progressivity of the tax system. This is an issue where the vast majority of US adults totally disagree with the Republicans and which people care about. My policy proposal and political strategy is to increase progressivity increasing taxes on the rich and cutting taxes on everyone else. This is still too politically effective and sound policy demagogic for many mainstream Democrats – it seems that the Democrats are debating whether to try to do this. However, they have decided to make the Republicans debate extending Bush’s tax cuts for families with income over 250,000 and individuals with income over 200,000. This means they have decided to campaign on tax increases (possibly paired with tax cuts).
I have long claimed that this is not just good policy but also good politics. Polling is clear, most US adults say they support this. The issue is whether the Democrats will get their message across. Simply put, they are proposing a tax increase on the highest income 2%. Will Republicans convince the public that Democrats are increasing their taxes ? The Republicans managed exactly that in 1993 and 4.
To me it looked good so far, and I get to reasons to worry after the jump.
I think a key factor is that prominent journalists and commentators will help the Republicans for two reasons. First, they present a disagreement about basic facts in which one party tells the truth and the other lies as a legitimate debate “opinions on shape of earth differ, both sides have a point.” Second, many of them are rich. I think plain class interest affects their reporting and commentary. In particular, I don’t think they believe that fewer than 2% of families make over $250,000.
So far I have read one article, the article by Lori Montgomery to which I link above. The news about the way the news is presented is not good. Among other things, Montgomery writes
Republicans say the tax cuts are critical to bolstering a feeble economic recovery. And with unemployment at 9.5 percent, even some Democrats are queasy about raising taxes on high earners — a category that includes many small-business owners — when policymakers are trying to encourage them to create jobs.
So she asserts, in her own voice, that taxes would be raised on “many” small-business owners. The word many is vague enough that this claim isn’t false. Are 1,000 many ? However, the claim is false if one interprets “many” as meaning “enough that one can detect the effect of increased taxes on employment at small businesses with owners whose taxes increase in macroeconomic data,” which is her implicit claim. The Republicans are lying (as usual). They have told this lie frequently and have been called on it frequently.
For example, Annenberg Fact Check called a related (but much more specific) claim “bunk”Annenberg Fact Check tries very hard to avoid apparen partisanship, so they try very hard to find roughly as many false claims of fact made by Democrats. I found that link on my first effort at googling
and had to scroll down among the many refutations of Montgomery’s false assertion to get to an impeccably ballancedsource.
Also only in her last paragraph does Montgomery note that some Democrats actually support my proposal and suggest combining permanent elimination of tax cuts for the rich and temporary extension of tax cuts for the middle class. This is better politics than the proposal she headlines and also better policy. Tax cuts for the middle class are a better stimulus than tax cuts for the rich even though sending money to state and local governments is a better stimulus than tax cuts for the middle class.
My guess is that temporary middle class tax cuts will be added along the way. It’s just too obvious that such a proposal dominates temporarily extending tax cuts for the rich as a stimulus (as argued by Kent Conrad and Republicans) both as politics and as policy. I’d say leaving that bit until after the jump is part of being balanced. The Republicans have no argument against it, so it would be unballanced to admit that it is the Democrats proposal before handing the mike over to Republicans.
I think a key difference from 1993 is that there are now independent media (read blogs) who can call the ballanced MSM on letting Republicans get away with lies. The game is on and the ball is in our court.
There is a “Joe the Plumber effect” at work here.
The Republicans have convinced an awful lot of people making around $40k/year that someday they will be multi-millionaires and that the Democrats’ proposed tax increases on the wealthy will then affect them, so they must oppose them today. It would be hillarious if it weren’t so pathetic.
Rich–How, pray tell, would I or anyone else go from earning $40K a year to being in the dire straits of having to pay a 36% tax of NTI over even $250K? How do you do that? Win the lottery? Nancy O.
MancyO said: “Rich–How, pray tell, would I or anyone else go from earning $40K a year …? How do you do that? Win the lottery?”
Nancy, the methodology/formula has been taught in schools for generations, and is beleived by millions who are pursuing it. Even if you are being sarcastic, it is misdirected.
If in fact you do not know, then the education system is lacking or you have failed to learn the lesson. Alternatively, not everyone has the emotional makeup (it isn’t so reliant on physical or financial means) for the grind to make it happen.
You have to have great faith in the ability of most Americans to clearly analyze the facts and come to a intelligent decision. I do not.
Progressive income tax? Tea partiers will equate progressive with liberal and claxon horns will go off in their little heads. The American people bought into two unintelligent wars, so I am confident that the MSM and Republicans can convince them once again that all taxes are bad. Except for, the beloved flat tax, which is regressive. And then the death tax must go because that is the most evil of all taxes. Corporate taxes are evil of course, poor things are taxed at 35%, even though none of them pay anything close to this. Never let the facts get in the way of tax policy and non-facts will be constantly reapeated by the MSM. The poor public will be confused as ever.
Unless, Obama decides to remember that he is a Democrat and stops trying to reason with Republicans who will never support him on anything. If he doesn’t, then the final tax bill will be a compromise which means the elites will triumph once more, and they haven’t lost yet.
Up in Can. said: “If he doesn’t, then the final tax bill will be a compromise which means the elites will triumph once more, and they haven’t lost yet.” After starting with this comment: “You have to have great faith in the ability of most Americans to clearly analyze the facts and come to a intelligent decision. I do not.” S/He takes a swipe atr the Americans and particularly the tea partiers, but we do have two successful examples of how successful implementing the tea party views can be. New Jersey and Virginia, recnet tea party-based wins and both successfully recovering from the excesses of prior Dem administrations.
Decrying Obama’s campaign promises of bipartisanship is just a little poklitical problem. Doing what s/he is espousing, passing legislation over the protest of the voters, is not just an issue, but a major potenatial earth quake level problem for the Dems in the 2010 elections.
CoRev–I went to school when you did. I excelled in school, worked hard and managed to do relatively well over a 40 year work life. But, in no year did I go from a $40K salary to one of $250K. Which is all I said. I would say that to have middle-class virtues like working hard, coming to work on time, studying hard in school and so on will not get anyone into the rarified air of the upper income group. That is apparently not what it takes.
You and I both receive federal retirement annuities of some type and have similar backgrounds in that regard. But, unless you started out as a GS-8 one year and ended up in an SES job the next, you didn’t go from $40K to $250K in one year either. Which is my only point. NO
CoRev–Our Canadian visitor did not refer to the Tea Party or any aspect of the 2010 elections per se. S/he did remark on the MSM views of political discussion as it appears on the networks and cable news programs. I cannot find fault with our visitor’s comments. You have your vote. I have mine. There we go–we cancelled each other out, eh? But, I would not disagree with anyone who points to the difference between the reality of our current tax system and its distorted portrayal on the MSM. Voters are well known to think two or more contradictory things at the same time. This election is no different from past ones. Save your dire predictions. As I recall, you didn’t think HCR would pass either. Jus’ sayin’. Nancy O
Correction–delete first sentence beginning”…visitor did not refer to the Tea Party” and ending “…per se.” Substitute the following, Our Canadian visitor remarked on the MSM views of political discussion as it appears….” Apologies. NO
Robert
I agree that the rich need to have their taxes raised. I count rich as anything over 40k. but I also think the poor middle and the poor poor need to have their taxes raised. If only to keep the rich honest. You see the problem is mindless greed. And as long as the poor middle and the poor poor are greedy there is no reason for the poor rich to give up their claim to perdition.
a 1% tax increase on the poor poor would not even be felt. nor would a 2% increase on the poor middle. so a 3% increase on the poor rich would feel less like they were being robbed, and could be sold to them as patriotism and another form of conspicuous consumption. hell, even i can brag about how big my taxes are at the coffee shop in the morning.
CoRev
I think Nancy is right, and she is not saying that no one can get rich. She is just saying it isn’t very likely. And Rich S is exactly right. The stupid middle class is firmly convinced they will be rich some day, and they think that not taxing the rich is important to their plans. Both ideas are stupid.
CoRev
used to be that in English “he” meant person of either sex. the ladies had their own pronoun for when they needed a little privacy. but the mindless pc’ers have ruint the language so you have to type an abortion like s/he. please join me in the resistance. save the english language. once in a while you can test if your correspondent is m/f by calling him “she.” he’ll let you know.
….and who then takes care of mjed’s father?? With skill and compassion?? No benefits like for government jobs either. Lucky for Co Rev he could opt for a good package in his chosen field.
NO, actually you did not say going from $40K to $250K in one year. You left the time frame open. You are absolutely correct, the both of us opted for the secure income versus the less so.
BTW, that was my point. Making that jump is clearly possible, but not necessarily in a year. For many have done it multiple times in their career. Ask a millionaire how many attempts it took, and you might be surprised at the answer.
I think there is a great difference in the way wealth is percieved. Does people making 50k a years make them wealthy? Or do we automatically include people whom makes 250k a year rich?
Remember, our income tax system is progressive. People whom make 250k will pay 55% or more of their income towards taxes. So their take home money is definately not 250k. It’s more like 140k-150k depending on your deductables and/or how AMT hits that individual.
Wealth is a perception. A small business owner will go through boom and lean cycles. Yes, there are times a small business may generate 250k in income for the individual, but there are lean times when you make not a single dime and you have still have to support your employee whom make “50K” a year.
So are we going to assume people whom makes over 250k a year a target of progressive tax because they are rich? A good small business have to be able to plan for the leans times to survive. Most small businesses, if they succeed, might have a few years that fits into the model of the rich 250k plus, but it’s build on multiple failure stories of others.
To truely target the rich, you need to target capital gains tax system. The progressive income system in the end will not affect the truely wealthy/rich, because it just ended up punishing people whom are productive.
Or if you want to try the “European Model” 35 hour workweek, you get taxed progressively every hour over 35 hours so when you reach 50 hours/week, you might as well work for the state. I.E. Just look at the How the French Health Care workers react to the Heat Wave that hit France back in 2003…
The only good reason to let the tax cut expire is that it is good for the economy especially when you are in a recession. You need to increase demand and rich people hoard money and government and poor people spend money. And it is now money spending time.
Three words: Payroll Tax Holiday.
🙂
Pax
no. you can’t subtract from “over 250k” to get 150k. the income tax is not 55%. and who the hell cares about the pre tax income anyway. what you and i are working for is the “take home.” that pre tax income is what it is exactly so we can get our “take home” and uncle sam can get what he needs to run the country. it’s too bad that taxes have to be calculated theis way, because people who would be thrilled to be making 150k “tax free” manage to feel robbed when the “make” 250k and Uncle Sam “takes” 50k.
as for the perceptions about what is “rich”, try living on 20k and giving yourself perceptions about being rich. or is that why the poor take dope?
the point is not to “target the rich.” or it shouldn’t be, except among a few unhinged “liberals.” the point is to collect taxes from the people who have the money.
btw, i am not a tax and spend liberal. i’d be happy to cut taxes for the rich. right after we pay for the last tax cut that was going to pay for itself but didn’t.
min
maybe the three most ignert words in the english language. the payroll tax is not a tax and “most economists agree” it’s “Really” the employees money. So you are going to cut the employees wages, and then who is going to pay their social security?
let me rant here: there is no need for a “stimulus” or a “tax cut.” we make enough money in this country already without cocaine growth. naturally it would be nice to make more, but we don’t have to hurt ourselves just to meet the numbers.
what we do need is a labor policy so we don’t end up with half the country making over 50k and the other half unemployed.
Dan said: “ Lucky for Co Rev he could opt for a good package in his chosen field.” It wasn’t so much luck as planning and hard work. After the service I worked in the rustbelt, before looking to join a new career field, computers. Moved to an area where that career was readily available, then opted for the security of working in the Govt.
Got two degress working full time and going to school part time. Planning, hard work and patience (it took several years of trying before getting into the big Govt) were the methods.
ah co rev
but you fail to allow for the element of luck in being able to “plan and work hard” not to say succeed at planning and working hard.
i suspect that like a lot of folks who work hard, you assume that no one who has less than you either planned or worked hard.
Oh, CoRev–For goodness sakes, just give over! NO
CoRev–It the last 30 or so years it has become very difficult to get a government job in any federal agency. Even DOD has outsourced a lot of jobs that used to be in-house. Even when you and I signed on, it wasn’t easy. But, during the 80’s and 90’s all agencies lost staff. SSA hires infrequently, and then only in targeted components. A few thousand jobs a year doesn’t touch the retirement wave as it gradually increases in size.
So, I would suggest that you and I were very, very lucky to get a government job and actually stick it out until retirement. Not only that but also we retired under a much more generous system than FERS, the current retirement plan. Certainly not something we had any control over. So, I give myself credit for having done a good job and working hard. But, the world is full of poor people and unemployed people who have always worked hard and done a good job. I lucked out and suggest you did too. Nancy O.
Well said, Coberly. NO
Romer has a new paper that appears to confirm tax cuts are stimulative. Read it here: http://elsa.berkeley.edu/~dromer/papers/RomerandRomerAERJune2010.pdf
what? Romer has converted you to believe that tax cuts grow the economy? who could have expected it?
For election time purposes, here is a quote from Romer:
“Finally, we find suggestive evidence that tax increases to reduce an inherited budget deficit do not have the large output costs associated with other exogenous tax increases.”
And the question in the paper is not “are tax cuts ‘stimulative’?” but how to approach measuring impacts of kinds of tax cuts tied to the purpose they were instituted, and a look at demand side/ revenue spending (output) or supply side measurements/.
It was some luck that the need was there that matched your skills and abilities at the time of excellent retirement programs. (But the fed retirement system takes its funding out of general revenues, unfunded liabilities for a non-productive age group is the election rhetoric, and there is not even a revenue stream to help!)
I won’t put up Bruce Bartlett’s piece on tax policies and political party.
No one can win the argument during a political campaign until they start talking about the income of this nation as a group effort. That is what was understood when we got the New Deal and taxation up to 90% at the very top.
As long as the dem want to keep the individual perspective of life and living as the explanation for all policy current and proposed, progressive taxation will not win because the intellectual foundation is missing.
Along with the understanding that all income produced is a group effort come the understanding that the purpose of business does not begin and end at “to make money”.
As to small business being hurt by returning the tax to it’s pre-Bush level, I posted on that one a while ago. The assesment was that it was to complicated for the average 30 second sound bit. So, let’s just go with: If your business paid you $250K + then you obviously did all the investing and expanding you had planned on.
I also posted on today’s language regarding tax cuts being the same as yesterday’s language: http://www.angrybearblog.com/2008/10/taxations-rhetoric-today-and-yesterdays.html
CoRev,
Don’t let the clowns play this one down.
Rdan,
Christine Romer contradicts catctus. She is a leading economist, and chief advisor of the current occupant of the Whitehouse. He is a nobody that wants to sping. Another person referenced Romer before the release of this paper. You killed his user name. So what have you got to say for yourself. The book being pushed by this website is junk. It makes fools of everyone here.
I will be surprised if it happens. The Democrats are all wishy-washy because they are also largely controlled by the rich. Not one has raised his voice. And the rich are too stupid to realize that for the power they have in America, ‘high taxes’ is CHEAP. They would rather kill the gooose than keep on waiting for those golden eggs. It is really pathetic, the kind of people who rule over us. And what it says about us, too.
Pax:
You conflate wealth with income. Not the same
GW,
Adviser to the President is not a guaranty of professional acumen as much as it is a suggestion that said adviser supports a point of view similar to the President’s objectives. Larry Summers is an adviser to the President and was an adviser to a past President. He was also a chief proponent of some rather destructive policy decisions made by that last President. (See deconstruction of finance industry/banking regulations, c. 1999-2000. A leading economist? Where were all those brilliant, leading economists during the last decade when they were being rather incommunicado regarding the path of destruction that the financial industry was taking at that time? Please, service to the White House is hardly evidence of professional excellence. Otherwise would the country be where it is at?
Looking at the distribution of household AGI (just google econophysics) one sees an
exponential distribution up to AGIs of around $150k/year (if memory serves me
well) and a power law distribution (Pareto) bove that.
Further, when accounting for inflation, one finds the exponential distribution’s
“temperature” (average) is time-invariant. In other words, most households
AGI shows these households are like gas molecules in equilibrium.
That’s the data. Now, given the shape of the distribution one can calculate
an exit probability for a household to move to the Pareto part of the
distribution…that probability is exponentially small. In still other words,
the economy has evolved to a point where those median AGI households
(around $48k/year) are doomed to remain there forever.
Folks, of course luck had something to do with my life. I am still here and not in some hole in the ground. I was born before the Boomers so actually planned around and included their impacts.
Remarkably, had I made a different decision when I changed careers I probably would have ended up retired at about the same age and living in another part of the country, but in similar fashion. Yes, that was all the luck of my upbringing and age.
Was I luckier than NO?, Nope! Luckier than Dale? Nope! Lucker than Dan? Perhaps, and that’s the age factor (advance wave in front of the Boomers.)
Jack,
Her work is published in the American Economic Review. That’s as good as it gets for journals. It means its been checked by the best economists in the country and her arguments have been determined to be sound.
During the last 10 years the fans of the Clinton administration claimed that Clinton’s balancing the budget reduced interest rates and that was the key to the strong economy and Clinton’s legacy. All Bush’s annual interest rates were lower than the lowest under Clinton and and under Obama they’re lower yet, all with moderate to insane deficits. So the old rationalization does not hold and thus the Clinton myth does not hold up. This leaves democrats needing to cobble together another story to rationalize the goodness of tax hikes. The Romer piece works against the tax hikers. I don’t think you can write off the American Economic Review as a right wing hate journal or Romer as a republican gun slinger (given she’s Obama’s pick as top economist in the administration).
The last recession was caused a housing bubble that happened at the same time and hastened along by an energy price spike that acted like a tax hike on all consumers. The story of finance is not one of failure but rather one that was too successfull in matching investors with borrowers which it what finance is supposed to do. The beakdown was in the retail sector people getting loans that should not have. The market was never brought down by zero sum game transactions. Thus, much of the new regulations are just an excuse to give government a seat at the table — which is really what they wanted all along.
CoRev
useless to compare luck. i have been lucky, but in ways that can’t be measured in money. as for that, I have had the advantages of the birds of the air and the lillies of the field.
Up In Canada,
“analyze the facts and come to a intelligent decision.”
Americans did put Democrats and Obama into power…so you are probably on to something here.
“The American people bought into two unintelligent wars.”
Yep…and so did the Brits and the Canadians…what is your point?
“The poor public will be confused as ever.”
The “Poor Public” gets what it deserves. Nobody forces them to pull the lever for any particular leader, nobody forces them to believe what they believe. If the public does not want to put the effort into learning and knowing what is best for them, then they deserve what they get.
And since you haven’t figured it out yet, the MSM agrees with you not Republicans.
“tax bill will be a compromise which means the elites will triumph once more”
The elites already pay 75% of the tax bill already. Make em’ pay the entire thing for all I care, but any belief that raising taxes comes without consequences puts you in the group you were just insulting…..you know… the idiots!