A mystery lies at the heart of America’s budget politics. In the weeks since debate began on raising the debt limit, President Obama has faulted Republican budget plans as a way of giving favors to “millionaires and billionaires” at the expense of the poor and aged, just as he did during last winter’s quarrel over retaining the Bush tax cuts. He does this because it places the public firmly on his side. In a time of sharp divisions on almost all policy questions, tax hikes on the rich are about the only tool of fiscal policy that the public professes to like.
It does not matter that by “millionaires” President Obama means those making over $250,000 a year—taxing them still wins broad assent. A Washington Post survey taken last month showed that Americans don’t like any of the benefit-cutting options for balancing the budget. Fewer than half want to cut the military, fewer than a third would cut Medicaid, barely a fifth would cut Medicare. But when anyone asks about tax hikes on those $250k-a-year men, Americans pound the table, clench their teeth, and nod their collective head vigorously up and down. The Post found that almost three-quarters support soaking those who make $250,000 a year, and more than half support it strongly.
Talking about taxes allows the president to remind the public about the prosperity of the Clinton years, which was accompanied by a 10-percent surcharge on incomes over $250,000. He could even note that the 1993 budget act, which introduced those high rates the public likes so much, passed without a single Republican vote.
Hence the mystery. Every time Republicans offer President Obama the fight he claims to be spoiling for, he walks away from it. His policy is a strange combination of demagogy and inaction. Maybe the president knows something the rest of us do not.
Conditions for a tax on the well-off are not now as favorable as they were in Clinton’s day. There has been inflation, for one thing. That quarter-million dollars that Clinton saw as the threshold of plutocracy bought two average houses in 1993; today it buys one. On top of that, many small businessmen file taxes as individuals. Raising rates would certainly cost the jobs of, say, stock boys at the corner pharmacy. And the amount of revenue that restoring the Clinton categories would raise—$80 billion a year—is a drop in the trillion-dollar-deficit bucket.
A tax on billionaires is a different story. Politically, there is no way it can lose. The traditional aim of taxation is to raise revenue for the state. In the wake of the financial crash, taxation has acquired a second aim: vengeance. As the Post poll makes clear, and as the 2009 scandal over bonuses paid to AIG employees makes clearer, Americans do not just want fairness. They want clawbacks. There are only about 400 billionaires in the country. But there would probably be little electoral downside to raising taxes on anyone making more than, say, $10 million a year. That is about the level where you can be sure you are no longer dealing with people who work at the corner pharmacy.
The political problem is that billionaires, as opposed to millionaires, are an Obama constituency. In the 2007-08 election cycle, 19 of the 20 richest ZIP codes gave the majority of their political donations—the vast majority in most cases—to Democrats, according to the Center for Responsive Politics.
But that alone is insufficient to explain why Obama’s attacks on millionaires and billionaires remain so purely rhetorical. Obama is giving up on tax hikes for some because fighting for them would raise the specter of tax hikes for all. The fate of Initiative 1098 in last fall’s elections in Washington state shows how this happens.
The measure offered Washington state’s rich people a means of “giving back” to a society from which they had drawn so much. This was to be done by introducing a state income tax of 5 percent, to be levied only on those making more than $200,000 a year. Sounds nice. Bill Gates Sr. championed the measure. Early polls showed it had the steady support of about two-thirds of Washington staters, just a little bit below the levels who support federal tax hikes on the rich.
But the more the measure was argued, the less people liked it. The money it raised from ordinary Washingtonians was supposed to go to education—a worthy enough goal, but it also happens to be the new family business of Gates’s son, the second-richest man in the world. And while the tax hike was great for egalitarian symbolism, it was disappointingly short on revenue. If it was revenue you wanted, well then, the tax would need to be extended to people further and further down the income scale. Initiative 1098 established the principle and the infrastructure for a state income tax that could in time be levied on anyone. By the end of the campaign season, voters were talking of a “slippery slope,” and 1098 was very unpopular. On Election Day, it was not just rejected but crushed, with two-thirds of voters opposing it.
That is why President Obama wants to avoid the issue. George W. Bush’s tax cuts were reckless. Any serious budget-balancing plan must undo them. But to act to undo a few of them is to make it plain that even undoing all of them—raising taxes on rich and poor alike—will constitute the merest down payment on getting our fiscal house in order. And in the short term that is a political truth that no politician, not even President Obama, will benefit from acknowledging.
Christopher Caldwell is a senior editor at The Weekly Standard.