The biggest problem in our politics for the last 30 years has been . . . what? Fill in the blank. Too much spending? Debt to future generations? Cultural politics? None of those. Plain and simple: taxes. The anti-tax revolt that started in 1978 in California (Proposition 13) has destroyed this country. Our taxophobia has made the rich vastly richer and reduced the amount of money for the public benefits the rest of us depend on, and a hundred other horrible things besides. If I’ve written one sentence over the years more than any other, it’s the sentence that goes something like, “Democrats will never move the country in their direction again until they can change the debate around taxes.” Well—the moment has arrived.
Barack Obama has proposed a higher tax on households in which $1 million or more per year is earned. That’s considerably less than the top 1 percent of U.S. households, which starts at around $388,000 per annum. We don’t yet know what the new rate will be, or how much it will raise. I suppose we can presume that, since it will be known as “the Buffett Rule” after the suggestions of Warren Buffett, the plan will include taxing capital gains and carried interest at the same rate (for millionaires only, that is, not for middle-income Wall Street dice-rollers) as regular income. Regular income at that high level is now taxed at 35 percent, while capital gains are currently taxed at 15 percent, but a comprehensive package would probably settle both rates somewhere in the middle. So in other words, when it all comes out of the wash, taxes will go up by not all that much on less than one half of 1 percent of the population.
It’s a smart move politically (finally!). Another sentence I’ve written a lot over the years is the one where I complain that the Democrats have fallen into a GOP trap by agreeing even to have the debate on taxes be about households at $250,000 a year or more. That’s just 2 percent of the population, or maybe 3, but it’s still a tougher argument. In nearly any major city in America, a high-school principal married to police sergeant, both with enough years’ seniority, easily make $250,000 together. So a lot of people who still think of themselves as middle class think: “Me? Why penalize me?” But a million? No principals are making that. Not many small business people are making that—you know, the folks the Republicans say they’re watching out for, a line they could also kinda-sorta get away with when we were talking $250,000. But a million a year: That’s truly the rich.
And yet! It’s still “class warfare,” said Paul Ryan Sunday. He went on: It “may make for really good politics, but it makes for rotten economics. We don't need a system that seeks to divide people. 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 these barriers for entrepreneurs to go out and rehire people. I'm afraid these kinds of tax increases don't work.”
Is he stupid, a liar, or something even more malevolent, a morally diseased ogre who secretly believes with his delirious mentor Ms. Rosenbaum that the rich deserve every handout government can offer them? First of all, he is (sadly) wrong with his first sentence. What Obama is trying to do here has unfortunately not made for good politics for the last 30 years in this country. But it has happened once or twice—well, once—and when it did, it made for quite good economics. Under what recent president was the economy strongest? Bill Clinton. Under what recent president were tax rates the highest? Bill Clinton. I don’t claim direct cause and effect. A hundred factors affect economic performance. But I certainly and emphatically claim that recent history disproves Ryan’s last sentence to such an extent that he can’t possibly be taken seriously.
And yet, his talking point has, except for the one Clinton episode from 1993, stopped Democrats cold for three decades. Now, crunch time has arrived. Obama has to win this fight on taxes. I’m told that in the White House, they finally understand that trying to compromise with these Republicans is a mug’s game. Obama grandly threatened Monday to veto any deficit-reduction bill that didn’t include tax hikes on the wealthy. It will probably never come to that. The Democratic Senate wouldn’t pass a bill he’d even have to veto.
What it hopefully will come to is this: No deficit-reduction bill passes because Republicans won’t raise taxes on millionaires. Obama rides this to reelection. The Democrats keep the Senate and pick up House seats because of this issue, and they scare a few Republicans into voting with them. Obama wins this argument sometime in 2013. That will be the first time in 20 years that taxes on anyone have gone up.
This tax fight will be the great test of the Obama presidency. All else—stimulus, bailouts, financial reform, even health care—was prelude. The tax debate is the money shot. If he wins this one, all the failures, even the calamitous debt-ceiling agreement, can be forgiven. Mr. President: Show us the money.