I've been a little surprised at the extent of the anger at the deal the Obama administration reached this week with Congressional Republicans to extend the Bush tax cuts for two years. Judged on its merits--it gives continued tax breaks to the wealthy, but also extends unemployment benefits and additional stimulative tax relief to the middle class in excess of the breaks for the wealthy--it seems to make a lot of both economic and political sense. So why so much anger, particularly from the left, but also from the right?
Some have argued against the compromise because it adds so much to the deficit. But Republicans didn't seem particularly concerned about the effect on the deficit of the continued tax cuts for the rich, and Democrats were supposed to be in favor of increasing the deficit in the short run to help the economy, particularly if those increases were targeted toward job creation and helping the middle class.
Some appear angry at the deal just because it is a compromise. Despite the fall's election results, which have evened the balance of power between Democrats and Republicans in Congress, many partisans on both sides still seem more inclined to show that they will not give in to the other side, even if that means that nothing can get accomplished. A lot of Republicans are making noise about not compromising their principles, and some Democrats might prefer that all the Bush tax cuts be allowed to expire rather than allowing the tax cuts on the rich to continue, just to show they cannot be pushed around either.
Some have argued against particular features of the deal. As a matter of policy, most Democrats think the tax rates on the rich are too low. Many Republicans are philosophically opposed to extending unemployment benefits, and think the cost of this bill is too great. Some are second-guessing the negotiators, believing that they could have gotten a deal more to their liking if different tactics or strategies had been employed.
I understand all of these objections, but none of them would seem to account for the visceral anger that is being expressed at the bill. Even if you think tax rates on the rich are too low, why get so excited about the difference between a 35% top marginal rate and a 39% top marginal rate? Considering that not so long ago we had top rates of 50% and before that 70%, and as recently as the early 1960's, a top rate of 90%, there doesn't seem to be all that much difference between 35% and 39%, at least not enough to threaten to blow the deal over, or start reckless talk of primary challenges to the President in 2012. Yet a lot of those kinds of threats are going around.
I'm starting to realize that the only explanation that makes sense for the firestorm this tax bill has created, is that it is a manifestation of real resentment at the extent of inequality in this country. Statistics tell us that wealth disparities have grown to the greatest levels since the 1920's. Those trends, combined with continuing resentment of the Bush tax cuts, skewed so heavily toward the wealthy; combined with the 2008 recession, which many quite rightly saw as having been caused by reckless Wall Street speculators; and topped off by the TARP program bail-outs, which many saw as rewarding the very fat cats who have caused so much misery, have combined to create seething resentment against the wealthy. Politicians are finally starting to talk about the gross disparities of wealth that exist in this country.
I still think the tax deal is a good deal, mainly because no better deal seems to be politically possible. One unexpected reason that it might be a good deal is that it is setting up nicely the issue of income disparity for the next election. It seems to be about time we had a debate about the fairness of the class structure in this country, and whether anything should be done about it. The Obama administration certainly hasn't tried to stir up such a debate. But it's there anyway, bubbling just beneath the surface, reflected in Tea Party resentment at bail-outs and taxes, and in liberal resentment at excessive wealth and tax breaks for the rich. These resentments may be ready to boil over if we don't deal with the issue soon.
(graph from The New Republic)