Wednesday, March 4, 2009

A war on the rich? Hardly

Conservatives have been attacking the President's budget proposal as a "war against the rich" and as "class warfare."

For instance, Michael Gerson wrote today in his Washington Post column today
Candidate Obama was a tonal moderate -- a pragmatist determined to muddle the old divisions of blue and red into a pleasing, post-partisan purple. His mainstream economic appointments seemed to confirm this intention. His stimulus package and bank bailout proposals were expansive and expensive, but not ideologically radical.

And then came the budget -- ideologically ambitious, politically ruthless and radical to its core.

Obama chose a time of recession to propose a massive increase in progressivity -- a 10-year, trillion-dollar haul from the rich, already being punished by the stock market collapse and the housing market decline. This does not just involve undoing the Bush tax reductions but capping tax deductions to collect about $30 billion a year.
And yesterday, David Brooks wrote in a column titled (this isn't a joke), "A Moderate Manifesto"
The U.S. has never been a society riven by class resentment. Yet the Obama budget is predicated on a class divide. The president issued a read-my-lips pledge that no new burdens will fall on 95 percent of the American people. All the costs will be borne by the rich and all benefits redistributed downward.
So how exactly does the President Obama propose to spread class warfare? What's his radical proposal and his massive increase in progressivity? Is the U.S. going to return to the top marginal rate of 91 percent that was in place in the 1950s, the top rate of 70 percent that was in place during the 1960s and 1970s, or the top rate of 50 percent that was in place during the administration of Ronald "the red" Reagan in the 1980s?

No, the President's "radical" proposal is to let some of President Bush's ill-advised tax cuts for upper-income households expire and returning some tax provisions to where they were in 2001.

Specifically, President Obama has proposed increasing some taxes from upper-income individuals by $637 billion over the next ten years. Slightly over half of the increase will come from letting the top two tax rates return to the levels they were at when President Bush took office. Just over a quarter of the increase will come from reinstating rules on personal exemptions and itemized deductions for the wealthy. And the remainder will come from returning the top marginal rate on capital gains for wealthy households to 20 percent. Wealthy households would also benefit from some of the tax breaks that are being continued or extended for lower- and middle-income families, reducing the tax bite below $637 billion.

The President is also proposing just over $200 billion over 10 years in additional corporate taxes, which would also fall heavily on the rich. The lion's share, however, of these corporate tax increases also involve repealing tax breaks given out under the previous administration.

There would be a change in progressivity but hardly a radical change.

Moreover, nearly all of the tax increases are slated to take effect in 2011 or later; wealthy households get to keep nearly all of their Bush-era tax breaks for this year and the next.

The country was running large deficits prior to this economic crisis, due mostly to these tax provisions. Following the crisis, it is entirely appropriate to return some tax provisions to where they were in 2001.

2 comments:

Roch101 said...

A good question of your analysis is raised over at Ed Cone's blog. The picture is incomplete without revealing at what income levels those previous rates took effect.

Dave Ribar said...

Roch:

Thanks. As you can see, I've been cooking instead of surfing Ed's blog.