On this page last week I argued that Barack Obama's first budget showed him to be more of a left-leaning liberal than I and many others - sceptics and admirers alike - had previously supposed. People I respect have accused me of going off the deep end about this, or of neglecting Mr Obama's tactical finesse, or both.You can read the whole thing here.
Mr Obama is calling for little that he did not promise in the campaign, I am reminded, so he cannot be accused of springing a surprise. I welcome many of the budget's main elements, notably healthcare reform and the cap-and-trade system for carbon emissions, and the president made it clear all along that he wished to reverse the Bush tax cuts for the high paid. So the revelation that Mr Obama is a progressive liberal must arise from the proposal to curb high earners' income-tax deductions. That was a surprise, but a small matter: hence the charge that I am getting carried away.
Alternatively, I am told, Mr Obama is playing a shrewder game. Like any good negotiator, he has adopted a maximalist opening position. He expects to be walked back from it, ending up where he wanted to be in the first place, with a more centrist plan than the one he pitched.
On the first point, the tax-deduction proposal is not so small. Instead of applying the highest marginal rates of tax to each deduction, the plan would apply a 28 per cent rate. This is equivalent to a tax increase of roughly $35bn (€28bn, £25bn) a year on households earning more than $250,000. Hardly chicken feed, it is roughly half of the amount raised by returning high earners' marginal rates to their pre-Bush levels.
Not everybody would regard two-earner households with an income of $250,000 a year as rich; and many of the taxpayers in question have seen their retirement savings, college funds and housing equity destroyed. The scandal of widening inequality that still animates the Democrats' thinking is a story about the top fraction of one per cent of the income distribution, not the top end of the middle class. Also, it is out of date: as though the housing and stock market meltdowns had never happened, the budget raises taxes on the "rich" to where they were before the Bush administration - and then some.
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My column for the FT today returns to the question of how liberal a liberal Obama really is. A week ago I argued that his budget showed he was the bold, progressive kind--and a lot of readers wrote to tell me they disagreed (or else that they agreed but I was a fool for ever thinking otherwise). This article tries to respond to the two main lines of attack.
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Not everybody would regard two-earner households with an income of $250,000 a year as rich
Would those people be correct? Why or why not? What does the data show?
the budget raises taxes on the "rich" to where they were before the Bush administration - and then some.
How do those tax rates compare to the rates of the Clinton era? Or the Bush Sr., or Reagan, or Eisenhower eras? Are the new rates historically high, or low? What have been the results, historically, of tax rates at the levels Obama has proposed?
The scandal of widening inequality that still animates the Democrats' thinking
I was under the impression that Democrats wanted to return tax rates to their Clinton-era levels because we have large deficits, and the Clinton-era economy was much, much healthier than the Bush Jr.-era economy. Which Democrats want to raise tax rates solely to address income inequality?
More broadly, does a broad survey of public opinion data confirm your impression that Obama is going far to the left? Which of his policy proposals are out of step with the mainstream?
I don't understand, $250,00 per household puts one in the top 3% by income. In what sense is that not rich? Perhaps I'm missing something in terms of wealth vs income, but I find hard to believe that there exists an accounting such that more than, say, 5% of the wealthiest Americans would be affected by the Administration's tax hikes.
Sure, $250,000 isn't rich by the standards of someone earning several million, but that doesn't seem to be the appropriate comparison.
None of this is an argument that the aforementioned tax policy is wise, but pretending that the afflicted are part of the middle class (defined with regards to the political usage of the term) is a bit much.
"Not everybody would regard two-earner households with an income of $250,000 a year as rich; and many of the taxpayers in question have seen their retirement savings, college funds and housing equity destroyed."
Cry me a river, Clive. I'm trying to get through daycare for three kids on a combined income of $60, 000 a year. Anyone weeping for me? Right. Didn't think so.
On the issue of whether $250k is "rich," I am probably entitled to address that, as my wife and I have combined income in that range. First, it depends on where you are. If you are in Washington, NY, Boston, etc, you are middling at best. We are in one of those named cities and live in an apartment that is smaller than a double wide. We have one 10 year old car. We haven't taken a foreign vacation in years and don't otherwise live extravagantly. We have maxed out our 401k contributions for years (which may have been an unfortunate choice, given what has happened to the value of those dollars – if we had spent them on a fancy car or a big house, we would still have those things to show for it and might even be in line for a bailout on our mortgage!) On the other hand, if we earned our income in, say, Knoxville, Tennessee, we would likely have 2 large, new cars and live in a 4000 sq. ft. McMansion. We are not poor at all, but no one would mistake us for a member of the plutocracy. So the real answer on whether 250K makes you “rich” is, “it depends.”
Mr. Crook, your column seems to me to confuse controlling health care costs with funding initial government outlays to get the plan going. When Obama talks about long-range fiscal stability, he's talking about curbing health care inflation itself, so that the government's share won't keep rising. Finding the tax revenue to pay for the government's role is another matter.
Also, while you've been pushing a VAT on the U.S., your last paragraph here hints at what may be Obama's opposite tax tack: creating higher tax brackets for the superrich. Yglesias floated that idea yesterday
http://yglesias.thinkprogress.org/archives/2009/03/mobilizing_the_lower_upper_class.php, and Nate Silver began to do the math:
The question, of course, is why there isn't a millionaires tax bracket now ... or even a multi-millionaires tax bracket. I haven't run the numbers, but I'm guessing that if you established a new tax bracket at, say, 40.5 percent, that started at incomes of $1,000,000 or more, this would bring in as much revenue to the government as restoring the $250K tax bracket (which is really $360K now given indexing to inflation) to 39.6 percent, as it was under Clinton.
http://www.fivethirtyeight.com/2009/03/missing-1000000-tax-bracket.html
Although my wife and I have a hefty income and large savings and no heavy expenses, I still think of an annual income of $250,000 as placing a couple among the rich.
On a somewhat related point, if we were to tax the rich to a greater degree, what might be some of the unintended consequences of taking that wealth from the "work" it is now doing (perhaps calling into existence luxury goods and services or assisting charities and higher education) and diverting that wealth to the public sphere? Does anyone have any thoughts on the idea of unintended consequences?
The alternative to taxing upper income people more is either a) taxing lower income people more, b) giving up on universal medical insurance and other social reforms, or c) running a larger deficit. I think taxing upper income people more is the least objectionable alternative. Mr. Crook, do you disagree?
Here's the median family income in New York City (44K), Boston (53K) and Washington DC (50K). Compared to the income of the average family, it is difficult to describe a combined family income of 250K as "middling."