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From Newsweek

Why Is Obama's Tax Cut for the Wealthy Not Big Enough for Even Some Democrats?

President Obama's proposal to extend the Bush tax cuts would mean big savings for rich people, even though the cuts in their taxes on income over $200,000 would not be extended. And yet self-described deficit hawks in the Senate's Democratic caucus say that's still not enough for the handful of rich people in their home states.

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Senate Budget Committee Chairman Kent Conrad during a news conference on the projected deficit for fiscal year 2010. (Scott J. Ferrell / Congressional Quarterly-Getty Images)

Every time you hear that President Obama proposes to extend the Bush tax cuts for every bracket except the highest earners (individuals making more than $200,000 per year or couples making more than $250,000), an important detail might escape your notice: those rich people are getting a tax cut, too. In fact, in terms of total dollars they are getting the biggest tax cut of all. Why? Because on every dollar they make in the lower brackets they pay those brackets' lower rates. So if you're a couple making $300,000 per year, the taxes on your first $250,000 will be getting cut.

Under Obama’s proposal, the richest 0.1 percent of taxpayers, those earning an average of about $8.4 million per year, would pay an average of $61,150 less than the baseline (letting the Bush tax cuts expire) as opposed to a $300,000 savings under the Republicans' plan to continue the Bush-era tax cuts in their entirety. So, the broad understanding of Obama's tax cuts for everyone but the rich is inaccurate. They are actually tax cuts for everyone, including the rich. The rich will simply get smaller tax cuts in percentage (but not dollar) terms. And that's just income taxes. Obama would also extend the child tax credit and a generous exemption for estate taxes, the latter of which disproportionately benefits wealthy families. When comparing Obama’s proposal to the Republican position, "the question isn’t whether to give high-income taxpayers a cut, but how much," says Tax Policy Center researcher Benjamin Harris. "Interestingly, the administration seems to be pushing this misconception; I’m not sure why."

Probably that's because Obama's tax-cut proposal consistently polls well. Cutting taxes on the rich, after all, is not really popular with everyone else, so why remind everyone that their boss will actually get an even bigger bonus from the federal government, dollarwise, than they will?

In light of these facts—the generous tax cut for rich people and the popularity of Obama's proposal, whether or not the public fully understands it—the politics of tax-cut extension in Congress are awfully puzzling. The Republican caucus insists that tax cuts on the dollars an individual makes above $200,000 (and $250,000 for a couple) must be fully extended, despite the unpopularity of that view, and its fiscal irresponsibility. When Republican House Minority Leader John Boehner admitted that it would make sense to vote for Obama's extension plan over letting the tax cuts expire altogether, his caucus rebelled.

Meanwhile, Democrats in the Senate who like to call themselves deficit hawks—such as Evan Bayh of Indiana, Joe Lieberman of Connecticut, Ben Nelson of Nebraska, and Budget Committee Chairman Kent Conrad from North Dakota—are siding with the Republicans. On the policy merits the logic is baffling. "As a general rule, you don't want to be cutting spending or raising taxes in the midst of a downturn," Conrad told The Wall Street Journal. But the concern Conrad refers to is the potential for the government to suck too much capital out of the economy by making tax rates too high, not merely how high they are relative to what they were last year. Imagine that President Bush cut taxes to 1 percent, so we faced enormous deficits and inequality, and he simultaneously launched wars and ran the economy into the ground. Would Conrad argue that even though the ideal tax rate on rich people would be somewhere around 40 percent that we cannot raise taxes until the economy recovers? No, so clearly the real question is not whether we are raising taxes during a recession but whether we are raising them to a rate that is too high. Conrad voted against these same Bush tax cuts in 2001, when we had a surplus, so supporting them now that we have a deficit, even for those who least need them and are least likely to inject the money into the economy by spending it, is incoherent.

Nelson is even more incoherent. In a statement on Thursday, Nelson said:

"I support extending all of the expiring tax cuts until Nebraska’s and the nation’s economy is in better shape, and perhaps longer, because raising taxes in a weak economy could impair recovery . . . Just like the stimulus package in 2009, it is imperative that we take actions to help the economy. I hate deficit spending, but some matters are so urgent that they can't wait."

Ah, the stimulus of 2009. That would be the bill that Nelson demanded Democrats shrink by about $100 billion to win his vote, because he was concerned about the deficit. But what about the stimulus of July 2010, also known as the extension of unemployment benefits? Nelson opposed it, on the grounds that "$77 billion or more of this is not paid for and that translates into deficit spending and adding to the debt, and the American people are right: we've got to stop doing that."

So how would Nelson's current position affect the debt? Adversely. According to Adam Looney at the Tax Policy Center, extending the Bush tax cuts, essentially Nelson's proposal, would add $680 billion more to the national debt over the next 10 years than would Obama's. If $77 billion of deficit spending is such a concern for Nelson, then wouldn't $680 billion be an even greater concern?

Ezra Klein argued at the time that this was an unhealthy obsession with the deficit over the economy's immediate needs. Nelson's office responded with several points, here are the first four:

"1. Nebraska's unemployment rate is 4.9%."

"2. The federal debt ranks as the second most worrisome issue to Americans according to Gallup."

"3. Leading economic index in US rises in sign of lasting rebound, according to a just posed Bloomberg story. [sic]"

"4. The estimated $1.4 trillion deficit is higher than any time since WWII as % of GDP, 10.64%."

OK, so if Nebraska's economy is healthy, and it's therefore time to get back to deficit reduction, wouldn't that apply once again here? And should not the same logic apply to Nelson’s other points—the size of our deficit, public concerns about that, and the economic recovery? Yes, so Nelson is simply being hypocritical and utterly nonsensical, according to his own stated concerns.

The only explanation left for Nelson’s stance is politics. Often when senators adopt positions that clearly contradict the national interest and their professed values it's because their state is particularly dependent on some vested interest. Farm subsidies, especially for corn, are the paradigmatic example. Could it be that, despite consistent majorities of the American public agreeing with Obama's position in numerous polls, Nelson and Conrad have special home-state political concerns? No, in Nebraska there were 17,979 tax returns reporting income of $200,000 or more in 2008, out of 857,622 total filings that year. That’s about 2 percent. In North Dakota, 7,522 returns out of 322,761 total, or about 2.3 percent, reported income greater than $200,000. Both those figures line up with the percentage for the nation as a whole.

So, there is no objective public-policy rationale for these Senate Democrats. There is no political rationale. (Evan Bayh is not even facing reelection ever, since he is retiring.) The only remaining explanation is that, whether it is because they wish to curry favor with the wealthy for personal gain or because they sincerely believe the rich are more moral than the unemployed, they simply want to do the rich a favor and they don't want to do any favors for the poor. There's a word for people like that: Republicans.

With reporting by Ryan Tracy

UPDATE: After this item was posted Sen. Conrad's office emailed us to note that there is a distinction, which we neglected to mention above, between Conrad's position and that of congressional Republicans: Conrad has explicitly called for the tax cuts on income over $200,000 to be sunset so that they expire in 18-24 months, while Republicans would make them permanent. When asked whether the tax cuts would not just be extended again in two years if they were passed with a sunset clause now, Sean Neary, a spokesman for Conrad, said,  "we are waiting to see what will happen with the [president's bipartisan fiscal] commission report in several months," which will address taxation.

 

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