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CAN DEMOCRATS WIN ON TAXES?
Among the more interesting points in the Leonhardt piece is the idea that the last few decades of rocketing inequality have dramatically transformed the contours of taxation as a political issue. I've argued often on this blog that given how much income is concentrated in the hands of the rich, you can cut taxes for the majority of the country, raise taxes on a small slice of wealthy Americans, and raise revenue, even as the average American's tax bill goes down. As Leonhardt argues, the relentless march of wealth accumulation -- the rich getting much richer, year by year -- made this truer in 2008 then it was in 2007, truer in 2007 then in 2006, and a helluva lot truer in 2006 then it was in 1993.
Obama, Leonhardt says, understands this:
Politically, he is trying to drive a wedge through the great Reagan tax gambit...For the bottom 80 percent of the population — those households making $118,000 or less — McCain’s various tax cuts would mean a net savings of about $200 a year on average. Obama’s proposals would bring $900 a year in savings. So for most people, Obama is the tax cutter in this campaign...All told, Obama would not only cut taxes for most people more than McCain would. He would cut them more than Bill Clinton did and more than Hillary Clinton proposed doing. These tax cuts are really the essence of his market-oriented redistributionist philosophy (though he made it clear that he doesn’t like the word “redistributionist”). They are an attempt to address the middle-class squeeze by giving people a chunk of money to spend as they see fit.As you see in the ad at the top, the Obama campaign is trying to turn taxes into a political win. Their dawning realization that the Republican obsession with preserving corporate profits and rewarding wealthy contributors has left Democrats as the country's tax cutters. But they're not explaining it well. The ad scans like a normal political ad: Republicans for corporations, Democrats for people. True enough. But that goes into the mental dustbin where all stereotypes reside. The Obama campaign has to figure out how to explain that the situation is different now: The the concentrations of wealth mean taxes aren't as progressive as they used to be, and there's a choice to be made in the tax code: Do you raise taxes on the rich to reduce them on the rest? Or do you let corporations and hedge fund executives hoard their gold? They're making one choice, McCain is making another. Somehow, they have to figure out how to present that not as a political attack, which it isn't, but as a simple statement of the public policy realities, which it is.He would then pay for the cuts, at least in part, by raising taxes on the affluent to a point where they would eventually be slightly higher than they were under Clinton. For these upper-income families, the Tax Policy Center’s comparisons with McCain are even starker. McCain, by continuing the basic thrust of Bush’s tax policies and adding a few new wrinkles, would cut taxes for the top 0.1 percent of earners — those making an average of $9.1 million — by another $190,000 a year, on top of the Bush reductions. Obama would raise taxes on this top 0.1 percent by an average of $800,000 a year.
COMMENTS (15)
To me it seems that the real slam dunk tax issue for Obama is that McCain wants to raise taxes on the middle class. Sure the McCain camp argues that, no, they don't, but actually, yes, they do.
McCain proposes taxing employer-provided health insurance benefits. This would amount to a massive tax increase on the middle class. The Obama team should run some numbers and start shouting about McCain's $98 billion (or whatever) tax increase on the middle class. Maybe McCain plans to offset this increase with tax cuts elsewhere, but so what. Let the McCain team explain the nuance. The fact is, he favors a huge tax increase. I'm amazed that Team Obama hasn't made more of this yet.
Posted by: Rob Mac | August 21, 2008 12:05 PM
I dunno. I want more money in my pocket, but I also believe that increasing taxes on the rich puts a drag on the economy. Seems to me, in this respect, I'm going to be better off no matter who wins. Or similarly worse off.
Not that I actually trust Obama to come through with the tax cutting part of his plan. Unless he does a public repudiation of Bill Clinton's mysteriously disappearing middle-class tax cut, or the Democrats history of raising taxes on everybody, would I even begin to think Obama's tax cuts would ever actually happen.
To promise a tax cut, and then fail to deliver it, is a great Democrat tradition.
Posted by: Kevin S. Willis | August 21, 2008 12:14 PM
I also believe that increasing taxes on the rich puts a drag on the economy.
That may be true if taxes are high, but if taxes are low and can be used to lower the deficit, that's probably not true.
I'm not sure that Obama will suffer because his tax policy might conflict with the quasi-religious beliefs about economics held by a few members of a pro-Republican libertarian-leaning cult.
The abosolute -- absolute -- most important thing for most people is knowing that they have more money in their pocket each year, due increasing wages. Taxation considerations are secondary, particularly given that taxes are quite low and that most people aren't going to face increased taxes, unless McCain starts taxing their health insurance benefits.
Posted by: Tyro | August 21, 2008 12:24 PM
Perhaps they can play off Goldfarb's "D&D" nonsense? McCain Tax Plan as Smaug, smoldering atop his ill-gotten hoard?
Posted by: James F. Elliott | August 21, 2008 12:25 PM
you know what the top marginal tax rate was before 1964?
91%
"slightly higher than clinton" doesnt get nearly close enough.
Posted by: rageahol | August 21, 2008 12:48 PM
Run this ad over and over again.
Posted by: SteveH | August 21, 2008 1:13 PM
I think it would be neato if Obama would use this issue to call bullshit on McCain's "personal sacrifice" theme. Yes, McCain wants ordinary Americans to sacrifice their income, jobs, health care, and lives, so that he can give more to millionaires and oil companies.
Posted by: bobbo | August 21, 2008 1:50 PM
Kevin S. Willis said:
I also believe that increasing taxes on the rich puts a drag on the economy.
You are, of course, free to believe this. However, history tells a different tale.
As rageahol points out, the top marginal rate was staggeringly high in the 40s, 50s, and 60s--a period in which the US saw amazing economic growth. Clinton also raised taxes on the rich in the early 90s and a period of massive growth followed.
In contrast, Bush cut taxes on the rich at the beginning of this decade and we have see how the economy has performed.
I would not go so far as to say that raising taxes on the rich actually causes a robust economy. I don't know whether it does or not. However, there would be far more evidence for this assertion than there is for your belief that it creates a drag on the economy. In fact, outside of the theoretical constructs of economics professors, there is no reason at all to believe that raising taxes on the rich has a negative effect on the economy--at least until you get to a punishing marginal rate like 80 or 90%.
Posted by: Rob Mac | August 21, 2008 2:41 PM
McCain's tax plan is essentially giving the bottom 80% of households a credit card with a $200 limit and a 20% interest rate.
Obama's plan is giving the bottom 80% of us $800 cash every year from the top .01% of us. No catch.
There has to be a way to turn that into an effective ad, right youtube?
Posted by: Dan | August 21, 2008 2:48 PM
Of course Obama understands that progressive taxation is good for the middle class. Everybody understands this. And yet, Ezra, you think the problem is that Democrats (they can't do anything right, can they?) don't explain it well. The problem is that Americans seem so comfortable with peonage and debt that they don't want to disturb the march toward a feudal distribution of income. That's the only explanation as to why this issue has been a political loser for 30 years.
Posted by: phillygirl | August 21, 2008 2:53 PM
I liked parts of the article, but it was overwhelmed by my anger at David Leonhardt for bringing out his "economists believe" broad brush. Example:
David says, "Populism hasn't won a national election, or even the Democratic nomination, in decades, and economists can point to any number of ways why it wouldn't work anyway."
No, David. Wrong. Neoclassical economists can point to any number of ways why they say it wouldn't work. There are plenty of other economists - institutional, Marxian, post-Keynsian, to name a few schools - who could provide any number of reasons why a populist agenda would indeed "work."
I had more nitpicks, but that was the main one. He did this a few more times in the article, also. Economists are not a monolith, and I would expect the NYT economics reporter to understand that much.
Posted by: alli | August 21, 2008 4:16 PM
Please don't hate on me for misspelling Keynesian. Honest mistake!
Posted by: alli | August 21, 2008 4:18 PM
I would strongly support a carbon tax and an assholishness tax.
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