Almost everyone is under-estimating what Republicans have just achieved in the fiscal cliff deal, including many Republicans who supported the deal.
Regardless of what politicians have been saying in public, everyone who has looked at the budget projections for the next few decades understands that, absent a sudden reduction in Americans’ life expectancy or other shocking development, middle-class -benefits are going to have to be cut, middle-class taxes are going to have to be raised, or both. The war between liberals and conservatives over the future of the welfare state is largely a matter of how much of each will be done. Conservatives think that it would be better to cut middle-class benefits than to raise middle-class taxes: that we should not take more out of people’s paychecks in order to give them more when they retire. Liberals would rather raise middle-class taxes than cut middle-class -bene-fits, a policy that reduces risks by setting a higher floor in retirement for everyone.
During the fiscal cliff debate, as in previous battles in that war, Republicans pointed out that the government cannot realistically make up much of its long-term financing gap by raising taxes on the rich. A tax-heavy solution to that gap will eventually have to rely on much higher taxes on the middle class. That’s how they finance large welfare states in other developed countries. European social democracies don’t generally have much higher taxes on corporations or high earners than the United States. The chief difference between their tax policies and ours is that they levy value-added taxes that hit consumption.
The fact that George W. Bush’s tax cuts were set to expire at the end of 2012, right after the reelection of President Obama, offered liberalism its best chance in decades for a large tax increase on the middle class. Democrats could not take the opportunity for two reasons. As Keynesians, they worried that the sudden imposition of higher taxes on the middle class in a time of economic weakness would cause another recession. As politicians, they knew that middle-class tax increases are deeply unpopular.
Still, there was a chance that Republicans would let the Democrats have the middle-class tax increases they secretly know they need, while minimizing the latter’s political costs: If Republicans had insisted on extending all of the Bush-era tax rates while Democrats insisted on extending only the middle-class rates, the resulting impasse could have sent us over the cliff, leading to higher taxes on everyone. Middle-class tax rates would have risen, and the child credit shrunk, to their pre-Bush levels. The Democrats could have tried to blame the Republicans for this result, saying that the GOP had let middle-class taxes rise as a consequence of its devotion to the interests of the rich. This strategy might not have worked perfectly: Democrats might still have suffered some losses in the 2014 elections as middle-class voters took out their frustrations over higher taxes on the president’s party. The higher taxes might, however, have outlasted any political reaction.
The deal averted any such scenario by extending the statutory rates enacted under Bush for almost all voters and striking any expiration date. To be sure, the payroll tax cuts enacted under Obama have expired, raising working people’s taxes. But federal revenues are expected to rise by only 2 percent. It will now take an affirmative act of each house of Congress and the president to raise anyone’s taxes beyond that level.
Avoiding blame for middle-class tax increases served the short-term political interests of both -parties; avoiding higher middle-class taxes themselves served the long-term ideological interests of only the Republicans. And the course of the debate over the fiscal cliff has reinforced the bipartisan taboo on openly raising middle-class taxes, a taboo that has persisted ever since Walter Mondale campaigned on tax increases in 1984 and lost 49 states. The only middle-class tax increase of any note to pass in recent years was Obamacare’s individual mandate, which had to be marketed as something other than a tax. Making matters worse for liberals, the political system has adopted a very broad definition of the middle class, one that includes, in the most recent deal, all couples making less than $450,000 a year.
Liberals will continue to want higher taxes and may even try, should the tides of politics shift sufficiently in their favor, to raise them on the middle class. The deal only means that future tax-hikers will have to raise middle-class taxes from a lower level than they would have had we fallen off the cliff to stay, and they will have to fight harder for their gains. Those are not small things.
The Wall Street Journal editors are unhappy about the present correlation of political forces. Who isn't? They're also, I gather, unhappy about "Beltway sages" who, facing the fact that the Bush tax cuts expire at the end of this year, have suggested Republicans accept a modest increase in tax rates for the wealthy while leading the charge to keep taxes from rising for 98 percent of the American people.
Vice President Joe Biden said the middle class "has been buried the last four years" at a campaign event in Charlotte, North Carolina:
"This is deadly earnest, man. This is deadly earnest," Biden said. "How they can justify--how they can justify--raising taxes when the middle class has been buried the last four years... How in Lord's name..."
Of course, Barack Obama has been president the last four years, and Biden has been vice president.
Two months ago, Vice President Joe Biden said on the campaign trail that he is "tired of being called a 'Middle Class Joe.'" But since he's the owner of a home valued at about $2,856,950, and since he's the vice president of the United States, this didn't quite ring true.
Ladies and gentlemen, prepare for battle! The 2012 campaign is shaping up to be a struggle over which candidate best represents the interests and aspirations of the American middle class. Unable to run on his record, President Obama wants to recast the election as a choice between stolid defender of middle-class values and radical pawn of selfish billionaires. We’ll let you figure out who’s who.
By a colossal margin, middle class Americans want Obamacare to be repealed. The latest Rasmussen poll of likely voters shows that, among those who make between $40,000 and $60,000 a year, a whopping 68 percent support the repeal of Ob
Politico reports that Warren Buffett’s idea of tax reform is apparently quite different from President Obama’s. Buffett says he would raise taxes on those with “very high incomes that are taxed very low,” but not on those making annual salaries of $50 million.
In his recently released deficit plan, President Obama lays out the “Buffett Rule” (named, of course, for Warren Buffett, the famous investor and supporter of Obama). The rule, as Obama defines it, is “that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.”
In the New York Times, David Leonhardt discusses what he calls “a popular talking point on cable television and talk radio”—that 47 percent of Americans no longer pay any income tax. Leonhardt grants the point—“The 47 percent figure is not wrong”—but adds, “Over the last 30 years, rates have fallen more for the wealthy, and especially the very wealthy, than for any other group.” But while the notion that something approaching half of all Americans don’t pay income taxes is true, Leonhardt’s claim about tax rates for the wealthy is not.
Recently the FT's Ed Luce spent some time with families in Minnesota and Virginia and concluded that we're pretty much done for. The American Dream, Luce says, has become "America's Fitful Reverie." His article is worth reading in full; in fact, it's the best summary of the decline argument that I've read.
Of course, whether or not Luce is right is another question entirely.