President Obama stuck to his guns, both in his speech earlier this week in Ohio and in his press conference today, by insisting that the Bush tax cuts on the highest income taxpayers be allowed to expire at the end of the year as scheduled. Politically this ought to be a no-brainer, since it benefits about 98% of the public. But Republicans do a good job of scaring people about anything that sounds like a tax increase, even when it is a tax cut for most of us. Meanwhile, the administration sometimes has an uphill battle trying to make people understand that the opponents of ending the Bush tax cuts for the wealthiest taxpayers are in fact blocking attempts to extend tax cuts for a vast number of middle class taxpayers. What gets lost in the debate sometimes is that all we are talking about is rolling back a top marginal tax rate of 35% to what it was in the Clinton years, that is 39%. Republicans have been so successful at making any discussion of taxes a minefield, that it seems we cannot have any kind of rational debate over whether the top marginal tax rate should be 30 or 40 or 50 or some other percent. They want voters to forget that the top marginal rate is already near historic lows, and that as recently as the 1950's and 1960's, top income tax rates were much, much higher, for a long time over 90%, and then for another long time at 70%.
Obscured in all of the rhetoric about expanding government versus personal freedom, which doesn't really seem to be the point when all you are talking about is whether the wealthiest taxpayers should pay 35% or 39% of their top marginal income in taxes, is the real underlying philosophical issue of inequality, a subject that it seems politicians cannot even raise without being branded as socialists or worse. (That implies that Eisenhower must have been quite the socialist for tolerating income tax rates as high as 90%.) To its credit, Slate has been publishing a series of articles by Timothy Noah about what he calls the Great Divergence, which is defined as the period of time, roughly from the late 1970's to date (which we could also call the Reagan era), in which the share of income of the highest few percent has increased markedly over the share held by everyone else. By contrast from the 1930's through the 1970's, which has been called the Great Compression, we lived through much more egalitarian times. There is a lot of debate about the causes of the Great Compression, as well as the Great Divergence, but government policy, and tax policy in particular, must have played some role in creating the more egalitarian society of the 1940's, 1950's and 1960's, as well as in creating the world of luxury boxes, second homes, and private jets for the very wealthy that we live in today. It stands to reason that if the government takes a larger chunk out of everybody's million dollar bonus, either those bonuses are going to be smaller, or the public will get more benefit from them. Either way, we might be creating a more cohesive, less resentful society. Lots of conservatives are nostalgic for the good old days of old-fashioned values derived from the Great Depression that people cherished in war years and post-war years. Let's not forget that those old-fashioned values included practically confiscatory federal income tax rates on incomes above a certain level.
No one is advocating top income tax rates even approaching 50%. Therefore, we ought to be able to have a rational debate about appropriate tax rates, without hearing about how the Republic would be destroyed by such policies. Once the anti-tax crowd concedes that we probably need some kind of income tax, and that some amount of progressivity in rates is appropriate (both of which probably even John Boehner and Mitch McConnell would concede), we ought to be able to discuss whether the highest marginal rate should be 30 or 40 or 50 or even 60 or 70 percent without being accused of taking away people's freedoms. I'm sure I'm incredibly naive to think that.
And I haven't even mentioned the deficit yet. Isn't it unconscionable for conservatives to complain about a skyrocketing deficit while advocating what is demonstrably the biggest cause, now and in the future of that deficit, namely the fiscally irresponsible tax cuts on the highest-earning Americans?
So let's talk about fiscal responsibility, but let's also talk about fairness, and what kind of society we want to live in. And let's put aside the fear-mongering and demagoguery that seems to preclude any rational discussion of tax policy.
(chart from fivethirtyeight.com)