Monday, November 29, 2010

Tax Cut Politics

Lori Montgomery of The Washington Post has found

Over the past few days, a growing number of lawmakers has publicly embraced the idea of extending expiring tax cuts for families making as much as $1 million a year. They include newly elected Sen. Joe Manchin (D-W.Va.), Sen. Robert Menendez (D-N.J.) and Sen. Claire McCaskill (D-Mo.), who argued on "Fox News Sunday" that "we should draw the line in the sand for millionaires."

It's not difficult to determine the reasoning of center-right politicians such as Manchin and McCaskill. Pushing a policy expected to raise the federal deficit $400 billion (over ten years) is as speedy a way as any to gain the moniker of 'fiscal conservative' and win the approval of that famous liberal media.

But support from Senators Menendez and New York's Chuck Schumer, as liberals, is a little more perplexing. Montgomery quotes Schumer claiming "There's a strong view in the caucus that if we make the dividing line $1 million, it becomes a very simple argument: We are for giving the middle class a tax break; they're for tax cuts for millionaires."

As Barack Obama and Chuck Schumer continue to negotiate with themselves, Senate Minority Leader Mitch McConnell has the GOP response we could have expected: "Republicans and a growing chorus of Democrats," the Kentucky Republican comments, "believe that raising taxes is a horrible idea" now, no matter who pays more.

McConnell comically added "it's not too late for both parties to work together." As the GOP rises up to oppose extension of unemployment benefits, its leader in the Senate finds that extending tax cuts for those with incomes at a mere $1 million is insufficient. And even above that threshold, someone with an income of $5 million would get a tax cut, inasmuch as the higher rate would kick in only at a penny above. (The increase would not be on the total income, but only at the margin.)

Nevertheless, McConnell is insistent that tax breaks go not only to millionaires, but to multimillionaires. Meanwhile, Schumer, only slightly more plausibly, appears to view middle class ending at a million dollars, an odd perspective when median household income was $49,777 in 2009. For those keeping score at home, that would make the Schumer-Menendez et al. threshold twenty- 20!- times as great as the nation's median household income.

The mega-rich already dominate the U.S. economy (graphs, from website of University of California at Santa Cruz, below) and adding to their wealth with a tax cut would do far less to stimulate the economy than would extending unemployment benefits and would add to the enormous debt (graph, from Crooks and Liars based on CBPP calculations from CBO data, further below) which "deficit hawks" reportedly are so exorcised about.

A remark by Jamelle Bouie of The American Prospect gives us a glimpse of the motivation of Schumer of New York and Menendez of adjacent New Jersey to set the threshold at $1,000,000 for discontinuing tax cuts. Bouie would "be disappointed if the 'dividing line' for middle class and rich begins around $500,000, much less $1 million." Even at $500,000, he notes, "you are rich, period. You make more than 10 times the median household income, and given your most likely occupation -- financial services -- you have been the chief beneficiary of economic growth for at least the last decade."

New York and New Jersey are high-income states (map of federal tax payments per state from visual and home to an enormous number of well-placed and highly influential individuals making their living (often a killing) in the financial services industry.

With acceptance from center-right Democrats and Democrats from the greater New York area, as well as the inevitable enthusiasm of Republicans, prospects for the upper class extending its advantage over the middle class are very bright, indeed.

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