Here’s one idea that could unite Main Street voters with Occupy Wall Street protesters — raise taxes only on individuals making more than $1 million a year and use that revenue to pay for President Barack Obama?’s jobs bill, which is made up of bipartisan policy proposals to get the economy moving again.
It is an audacious idea, brewed first by Sen. Charles Schumer and backed by Senate Majority Leader Harry Reid as preferable to the president’s repeated call to roll back the Bush tax cuts on any household making more than $250,000 a year.
There are several reasons that this new millionaire’s tax is both smart politics and smart policy.
First, an astounding 75% of Americans back raising taxes on individuals making more than $1 million a year, according to an October 5 Washington Post/ABC News poll. This includes 89% of Democrats, 75% of independents, 57% of Republicans and 55% of Tea Party supporters. This isn’t subtle — it’s a slam-dunk.
The reason this resonates is because it focuses exclusively on the super-rich rather than lumping them in with upper middle class voters who might be called the working wealthy. A household income of $250,000 per year is far from jet set, especially in more expensive areas of the country, where some two-parent working families could find themselves taxed at the same rate as the local billionaire.
The average big-business CEO salary is now $9.6 million a year, while the average family of four makes $50,000 — a multiple of nearly 200. The middle class squeeze that is driving frustration and desperation in this unsteady economy has gone on for decades as their income has remained stagnant. A 5.6% surtax on the objectively super-rich — some of whom have much of their income taxed at lower capital gains rates rather than those for regular income — is vastly preferable to raising taxes more broadly. And if applied temporarily (an always dodgy proposition where taxes are concerned) it would take the top rate for the super-rich to roughly where it was during the Clinton years, when we turned then-record deficits into surpluses.
The best option of all in my book would not be a targeted surcharge but broad-based tax reform that could actually lower all rates to spur growth while closing some (but not all) loopholes to raise revenues. This is the broad goal set out by the bipartisan Bowles-Simpson commission, a vision championed by Budget Chairman Paul Ryan and even once campaigned on by a candidate named Barack Obama. But expecting this divided, dysfunctional Congress to tackle anything as comprehensive as tax reform without tearing each others’ throats out seems naïve in the extreme. Still, I’ll keep hope alive for a simpler, fairer, flatter tax code.
But in its absence, we need a way to pay for a jobs plan so that it doesn’t put our nation deeper into debt. A surtax on people making more than $1 million a year is one way to do it. Conservatives will claim that any such proposal is class warfare, but that reflexive attack is in danger of losing its sting because of overuse. Small business owners might have been able to identify with a $250,000 threshold, but creating a populist spin in defense of those who make more than $1 million a year will be a tougher sell.
Fifty-eight percent of Americans think the president’s jobs plan will help the economy, according to that Washington Post/ABC News poll. And while Obama’s job approval is at historic lows, he is still three times more popular than members of Congress. More to the point, the president is perceived to be more concerned about middle class Americans than the congressional GOP by a margin of 52%-32%, while the GOP is seen as more focused on the rich, by a deep margin of 70%-17% — not a great ratio in a time of populist anger.
Those professional cynics who parade under the term “Washington insiders” are confidently claiming that Reid’s proposal is dead on arrival, just like they did with the Bowles-Simpson and “Gang of Six” plans before it. These pronouncements help create conventional wisdom, but they are not conclusive. After all, the political impetus of this new plan is clearly related to corralling votes — swing-state senators who would have faced greater pushback on the $250,000 rollback of the Bush tax cuts. Any Democrats who are resisting this proposal in favor of the full $250,000 are the real class warriors, supporting tax hikes out of general redistributive principle even though regions with a high cost of living would suffer.
With economic anxieties again increasing, taking action on at least large swaths of the jobs plan seems like a political and policy imperative, especially since the plan itself was built on proposals that have gained bipartisan support in the past.
Cutting corporate taxes in exchange for closing loopholes, retaining payroll tax cuts and creating a public-private infrastructure bank should retain broad support — but real deficit hawks should recognize that these efforts need to be paid for, and cutting discretionary spending alone to deal with the deficit right now would be deeply counterproductive in terms of overall economic growth.
A surtax on the super-rich is the least painful way to do that in the short term — it’s not class warfare as much as a call for additional sacrifice from those who can most afford it to help get our country moving again.