Middle-Class Tax Cut Not Worth Preserving

David Dayen at Firedoglake:

The only leverage that Democrats hold, the only thing they have that Republicans want, is the coming expiration of the Bush tax cuts. That was true at the end of 2010, when they extended them for two years and got some more, mostly tax-side, stimulus as a result. It’s true at the end of 2012, when the hope is, if we avoid a default-caused depression, the economy will be on stronger footing. So there’s a belief that this leverage can be converted into a bold tax reform that would end loopholes and create a fairer tax code.

Except that the President has been trying to give away the Bush tax cuts throughout the negotiations. He’s not interested in using that leverage; he doesn’t want the fight. He would rather get the relatively meager revenue gains from canceling the tax cuts above $250,000 of income and be done. This is because of a stupid campaign promise that has put tax policy in a straightjacket.



As Matt Yglesias shows with the above chart, the benefits of the so-called “middle class” Bush tax cuts actually go disproportionately to the rich. We have marginal tax rates in this country, so the rich feel all the benefits on the cuts in the smaller tax brackets. These are not well-designed policies, and so just extending them rather than letting them expire and writing a new set of better-distributed policies misses a big opportunity. Anyway, a policy that allows low taxes for people making not enough to live but practically no services for them doesn’t really help them out.

The truth is that, if we had the same distributional impact in tax policy at the individual and corporate level that we did in the 1960s, we wouldn’t have a budget deficit. But Democrats are afraid to say that. They’re afraid to get into any argument about taxes for fear that they cannot win. And as a result, poorly-designed tax policies that benefit the rich – even when at a headline level they’re supposed to benefit the poor – predominate.

Crooks and Liars has the appropriate audio:

In keeping with our current preoccupation with taxes, the deficit and spending, I thought I would run an address President Franklin Roosevelt gave while campaigning for re-election in 1936.

Seems the subject of taxes has been with us for a very-very long time. And it also seems the ones doing the most complaining haven't changed very much in the past 200 or so years.

Comforting, I suppose. But you'd think by now it would get a little tired.

In 1936 though, FDR had a few choice words nestled in what has become a timeless address.

President Roosevelt: “In 1776 the fight was for Democracy in Taxation. In 1936 there is still the fight. Mister Justice Oliver Wendell Holmes once said ‘taxes are the prices we pay for civilized society’. One sure way to determine the social conscience of a government is to examine the way taxes are collected and how they are spent. And one sure way to determine the social conscience of an individual is to get his tax reaction. Taxes, after all are the dues we pay for the privilege of membership in an organized society. And as society becomes more civilized government, national and state and local, is called on to assume more obligations to its citizens. The privileges of membership in a civilized society are vastly increased in modern times. But I am afraid we still have many who still do not recognize their advantages and want to avoid paying their dues.”

Tax breaks for the wealthy were a concept well in place by the time Hoover was President.

FDR: “To divide fairly among the people the obligation to pay for these benefits has been a major part of our struggle to maintain Democracy in America. Ever since 1776, that struggle has been between two forces; on the one hand there has been a vast majority of citizens who believe the benefits of democracy should be extended and who are willing to pay their fair share to extend them. And on the other hand, there has been a small but powerful group which has fought the extension of these benefits because they did not want to pay a fair share of their cost. That was the lineup in seventeen hundred and seventy-six and it’s the lineup today. And I am confident that once more, in nineteen thirty-six democracy in taxation will win. Here is my principle, and I think it’s yours too; Taxes shall be levied according to ability to pay. That is the only American principle.”

So hearing this now and knowing it was from the dim-distant past of 1936, it makes the current situation and posturing that much more absurd. Unfortunately if it were only absurd it would be laughed off. But it has become deadly serious business in the ensuing years.

And I keep reminding myself that Fair is a place in Pomona California where people get together once a year and show cows.

Click here for audio.

Liberals know the middle class is the foundation of American Greatness, and only an economy that works for all will protect that foundation.