Obama’s Tax Plan Is About Politics & Class Warfare, Not Tax Policy
The President could describe his tax plan differently, but there's a reason he isn't.
Dan Amira notes that every media outlet is reporting that President Obama is reporting that the President called to today to retain the Bush-era tax rates for people making less than $250,000 per year, but to raise them for people making more than that, and he asserts that they’re getting it wrong largely because the President is getting it wron as well:
Obama is not proposing that families making up to $250,000 a year keep their tax cuts while families making more than that don’t. He’s proposing that everyfamily keep their tax cuts on their first $250,000 of taxable income (which isnot the same as “income” or “earnings,” by the way).
That includes families with taxable income of $260,000, $1 million, $5 billion, $3 trillion, or whatever Jay-Z and Beyonce make in a year. Everyone would continue to pay a lower tax rate on their first $250,000 of taxable income under Obama’s plan. To report that Obama only wants to maintain tax cuts for families making less than $250,000 is simply false.
If you’re wondering how literally the entire media could get this story wrong, look no further than Obama himself, who is framing his own tax proposal inaccurately. “I’m calling on Congress to extend the tax cuts for the 98 percent of Americans who make less than $250,000 for another year,” he said in an East Room speech earlier this afternoon.
Amira is right, of course. What we’re talking about here is the wonderfully complicated world of marginal tax rates, which the media itself doesn’t seem to want to bother to take the time to explain. The fact that someone makes, say, $450,000/year doesn’t mean that, suddenly, all of their income becomes taxable at the new, higher, rate. Their income below $250,000 will still be taxable at the Bush-era rates, while that portion of their income above $250,000/year (or whatever number you might want to pick since some Democrats seem to favor a $1,000,000/year threshold) will be taxable at the higher rate. This is the way our tax system has worked ever since the idea of different rates for different rates of income came into existence. It doesn’t mean that the tax increases are a good idea, that’s a different question, but it does mean that the impression created by the idea that the President’s plan raises taxes on “the rich” isn’t entirely accurate, at least not in the way I think most people understand it.
There’s another complication, of course. The fact that someone earns that $450,000 in gross income in a given year doesn’t mean that every penny over $250k would be taxed at the new, higher rate. As anyone who has ever completed a tax return knows, there are several adjustments made to income before the tax owed is even calculated. We start with gross income and, from there we go through the deductions from income that bring us to Adjusted Gross Income. The current Form 1040 includes some 13 separate deductions that could be taken before AGI is calculated. And we’re not done yet. From the Adjusted Gross Income, we deduct the personal exemption and either standard or itemized deductions that the taxpayer might be entitled to and we come up with Taxable Income, which is the number that is used to calculate ones tax liability. The point is that the amount used to calculate tax liability could be, based on an individual taxpayers circumstances, be substantially different from gross income. So, when we talk about raising tax rates on people who “earn” more than $250,000 per year, we’re really talking about raising taxes on people with more than $250,000 per year in taxable income. That is potentially a big difference.
The question, of course, is why the Administration isn’t selling the plan like this. One answer, of course, is that it’s harder to explain the vagaries of marginal income tax rates and the calculation of taxable income than it is to just explain it in the manner the President did in his East Room Address today:
WASHINGTON — President Obama, drawing a contrast with what he called Republican trickle-down economics, called on Monday for temporarily extending the Bush-era tax cuts for people making less than $250,000 while letting the taxes of the wealthiest go up.
Leading Republicans promptly rejected that approach, saying that it would be a mistake to raise anyone’s taxes when the economy was so weak.
Flanked by supporters handpicked to represent the taxpayers — 98 percent of households and 97 percent of small businesses, Mr. Obama asserted — who would benefit from his approach, Mr. Obama said only a strong middle class, not an ever wealthier top rung, would foster economic growth.
“These tax cuts for the wealthiest Americans are also the tax cuts that are least likely to promote growth,” Mr. Obama said.
“We don’t need more top down economics,” he said. “We have tried that theory. We have seen what happened. We can’t afford to go back to it.”
Additionally, though Amira has a theory as to why the Administration isn’t spinning this differently and I think he hits it right out of the park:
Normally, a president would want to publicize that he’s trying to cut taxes for everyone in the country. But Obama actually has an incentive this time to downplay the number of Americans who would benefit from his tax plan. His proposal is, at its heart, a political maneuver meant to force Mitt Romney to defend tax cuts for the wealthy. It’s more effective, then, for it to be seen as a cut solely for the middle class. The reality is that Obama’s proposal would also keep Warren Buffett’s taxes lower, if only a little bit.
In other words, this isn’t a real tax proposal and it isn’t meant to lead to legislation in Congress. It’s a political ploy related to the election. It may work in the end, but I’d be interested in seeing how things would go if a politician actually explained an issue like this honestly instead of engaging in class warfare.
Still strikes me as very strange that it’s always been fine and understood that this should be immediately referred to as “engaging in class warfare” – but spending 3 years demanding deficit reduction be based only upon cuts to programs that mainly benefit the low & middle classes, without ANY revenues – well, that’s just good ol’ fiscal conservatism.
Yes, it is. He wants the top marginal rates to revert to Clinton-era rates if 39.6%, while every income bracket from $250,000 down would remain at Bush-era rates (of 10% to 33%, depending on your income). It’s very clearly an actionable policy, that the administration compromised on in 2010 to usher through DADT repeal. It’s certainly not comprehensive tax code reform, but that’s not your complaint.
exactly- they call it class warfare when we fight back…
As long as we have a moderate progressive income tax system, all tax policies and proposals to change are “class warfare” and also {{gasp}} “politics”
@James:
You and I and anyone who follows politics knows that legislation like this is not going to pass before the Election. Obama knows it too.
Republicans and libertarians want to close the deficit at the highest possible expense to the weak and vulnerable and at the least possible inconvenience to the comfortable and profit-accruing. Every libertarian’s and republican’s most heartfelt creed – lick upwards, kick downwards.
Obama is not allowed to point that out? He’s informing the electorate! Obama wants to close the deficit, he’s just not being a sociopath about it.
@Doug Mataconis: We also know that anything Obama proposes will not pass.
Oh, and this handy dandy little chart explains what the fight is all about better than words ever could. (via TPM)
@Doug Mataconis: It’s likelihood of passage has zero bearing on if it’s a “real” proposal or not. Why don’t you just come out and say you don’t think the top marginal rates should up the 4.6% to Clinton-era rates?
Class warfare…is there a more intellectually lazy charge you could make? Probably not.
@James:
As we now know, that 4.6% is the difference between us and communism. The Clinton years were a terrible experiment with Marxism. At least Bush lowered taxes while waging 2 wars and jamming through an unfunded Medicare prescription drug program.
There has been class warfare since Reagan was elected and as Warren Buffet said my class is winning. The only thing that has changed is we are fighting back. And yes, of course it’s political – what in DC is not political.
Doug –
I agree with you that this is unlikely to be passed, though I think that is equally true of anything Obama might propose between now and November, so, like James, I don’t see how this proposal qualifies as more political than any other thing that Obama may propose in the coming months. He is NOT going to stop proposing legislation in the interim, so we better get use to that.
Regardless, by dismissing this proposal as a political ploy, you’ve managed to avoid the points being made, be they political or not:
– Tax cuts for the wealthiest Americans are also the tax cuts that are least likely to promote growth
– Only a strong middle class, not an ever wealthier top rung, will foster economic growth
– We’ve tried top down economics for the last 10 years and they haven’t worked
Obama’s right on all counts.
And speaking of politics – the announcement by Rick Perry and other GOP governors that their states will not accept the ACA medicare expansion is also pure politics. They will because the hospitals in their states would like to be paid for those emergency room visits and will convince them otherwise.
@Doug Mataconis: Whether it passes before the election is not the point. The point is making it crystal-clear that the Dems want this and the GOP doesn’t.
So it’s not enough any more to cut taxes on the rich but the fact must be trumpeted lest one be accussed of formenting class war. At least I’m glad that Republicans don’t engage in such shenanigans–can you imagine the wide-spread outrage if tax cuts that were ostensibly meant for the wealthy somehow wound up in the pockets of the middle class?
See my post from this morning on why I think the GOP has the bargaining advantage here regardless of how the election turns out.
@James:
Much like people like Bill Clinton, Joe Manchin, James Webb, and the Congressional Budget Office I am not sure that raising taxes on anyone when the economy is as weak as it is would be a good idea.
As far as overall tax policy goes, I prefer comprehensive reform along lines I’ve outlined here many times before rather than fiddling with rates like this
Rick Perry’s latest is an actual example of class warfare where if he gets his way the result is a warlike state of pained and broken bodies. Enhanced tax progressivity isn’t remotely warlike and the hysterical branding is silly and inappropriate.
@Doug Mataconis: You fail to address my points. All the people you enumerate, may in fact devoutly believe that raising the top marginal income tax rate 4.6 percentage points would have a some type of drag effect on growth. That’s fine. Just immaterial. You alleged that the plan “isn’t a real tax proposal” and that it “isn’t meant to lead to legislation.” This is doubly false; it’s both a real proposal, and is clearly designed to pass Congress.
Bingo!
P.S. — The remainder of that blog post is waaaaaay too factual and far too sentient, for the Internet. Ironic, that is.
The wealthy, myself included, have no right to complain about the tax code. It clearly benefits us weather the Bush tax cuts stay in place or not. I still get to keep my capital gains, my home owners deduction, and all the other perks that come with having money. Meanwhile, cutting taxes on those who need the money would provide a jult to the economy that would also help my stock portfolio to grow, where i benefit again because i get dividends and only 10% tax if i own it for over a year.
@Doug Mataconis: Yes, better those tax cuts for the wealthy continue generating interest for the poor, cash-strapped wealthy rather than have the 1% pony up to pay for some of that infrastructure that Chris Christie was all a-Twitter about today.
@rudderpedals: We should be even more worried about Scott in Florida who has so hampered public health outreach, there is now a tuberculosis outbreak throughout the state. And the administration worked to keep it quiet. GOP governors appear to be willing to kill their weakest and most ill-represented constituents to score political power.
Remember when Republicans want to raise taxes on the middle class so they can give more free money to corporations and rich people (the Ryan plan), it is not class warfare, but necessary budget reform. Ah, the contradictions of Republican Mataconis . . .
I don’t even understand Doug’s comment about this not passing because it’s an election year. The current tax cuts are expiring. If Congress doesn’t pass anything then taxes get raised on everyone, including the top 2%. So, yes, this might not pass. But implying that Obama has no leverage here is simply wrong. He has a ton of leverage. All the leverage that comes from truthfully saying that your taxes are going up this year because Republicans feel that you are a bunch of parasites unless you are in the “job creator” 2%.
@MarkedMan:
Please name me one major piece of legislation that has passed in a Presidential election year before the election.
This is something the Lame Duck Congress will have to deal with, in light of the election results. That’s reality
Poor libertarians….anyone who doesn’t slavishly kneel at the feet of and cater to the wealthy is automatically practicing “class warfare” in their poor little Randian minds…
Hmm…so if he doesn’t propose anything, he’s a do-nothing wimp, but if he does propose something, it’s just “politics” and “class warfare”….I guess it’s the old game of heads, I win, and tails, you lose…
Using that same logic, any spending cuts are also not a good idea when the economy is so weak…
@Doug Mataconis: It never hurts to screw your opponent during an election year with sound policy that will be most helpful, and, probably, most pleasing, to the majority of your constituents. You know that you would approve the move if it the candidate was someone you liked.
It´s only class warfare because as communists like Mr. Simon Johnson and David Stockman says taxes are going to have to be raised for everybody. and Republicans refuses to accept reality.
@Doug Mataconis: Doug, I’m still not sure what you are saying. Are you contending that nothing will get passed and taxes will go up on everyone? Oh wait, I think I see. You are contending that nothing will get passed before November and then Congress will have from election day to Jan 1 to resolve it. Is that it?
@Nikki: Rick Scott is a disaster but in his defense he never really pretended to care for anything other than talking his book like any other investment titan. He’s talking a talk the other Southern governors love. Is it a regional thing?
@Doug Mataconis: TARP was passed shortly before the 08 election
Was he ever proposing that people making more than $250,000 a year have the tax rate higher on the first $250,000 of taxable income?
Yeah I’m so over with the whole “class warfare” thing. It’s like you can never ever ever be engaging in “class Warfare if your attacking unions, sucking more out of the working class or actively advocating raising taxes on the poor and working class. But take one tiny baby step in trying to revers the trend of getting tax revenue back to historic postwar norms and OMFG!!!!!!! CLASS WARFARE!!!! SOUND THE ALARM!!!!!!
Get a clue Doug, the very idea that the top 20% of Americans control over 65% of the wealth ought to give anyone pause. There is nothing in your fevered glibertarian fantasy that can really justify that. Further the idea that incomes in the FIRE sector have been steady on the rise over that last 30 years should make you outraged. I mean for god sake, the only thing FIRE does for the economy (broadly speaking) is provide liquidity. Why does that price of that liquidity keep going up year after year without any increased benefit to the economy? (answer: because suckers like you keep supporting policies that make it so in the name of “freedom”)
I am shocked, yes shocked, to see politics in a presidential election.
And class warfare? Seriously? Isn’t that getting to be about on a par with warning of the dangers of the Know Nothings?
@Doug Mataconis:
It is funny to me that you think Amira comment is right on in justifying that what Pres Obama is engaging in is class warfare. I would even believe you if this was Obama’s first effort to extend the tax cuts below a certain income while allowing the Bush tax cuts to expire at higher incomes. However, the problem is that Obama campaigned on this in 2008, and nogotiated with it before the 2010 elections. The fact that Romney appears to be a rich and out of touch candidate is a bonus. Given the history of Obama’s stance on this, how could anyone suggest that Obama is engaging in class warfare becuase of the candidate thats running against him? Romney fail into their lap!!! It is no added incentive for the Obama campaign. His position never changed.
Please answer these questions – In the name of shared sacrifice, is this still class warfare? What is your definition of shared sacrifice?
@OzarkHillbilly:
Thank you, that was a good chart.
It reminds us that (a) this is about keeping tax cuts, and (b) both party’s plans are pretty equal for 95% of the workers.
No wonder Doug’s “class warfare” spin gets so much push-back. Normally Doug worries about deficits and long term obligations. It’s amazing (or wouldn’t be if we weren’t so used to it) that he abandons all those rational concerns … because 5% of Americans might retain less tax cuts than the other 95%.
OMG, right? Stop everything. Stop problem solving, until we make sure that the very richest among us are protected in these desperate times!
@Doug Mataconis:
In other words, this isn’t a real tax proposal and it isn’t meant to lead to legislation in Congress. It’s a political ploy related to the election. It may work in the end, but I’d be interested in seeing how things would go if a politician actually explained an issue like this honestly instead of engaging in class warfare.
@LaMont:
There is no answer than can protect the top 5% tax cut and make sense in terms of day-to-day lives. At the low end, a family is struggling to hand down a car so a kid can go to college, at the top end the kid is getting a new Range Rover.
@LaMont:
I believe Doug opposed “higher cut lapses” last year, when they were real, for the same “class warfare” reasons.
It is a trope though:
“Class warfare” means “you can never ask the rich anything, they are off-limits.”
As an aside, I made my money in the dot com. I was in the top bracket for 3-4 good years. I got enough to retire early. I did that with the old pre-Bush tax rates.
Doug is trying to protect “old me”
But I don’t really get it. It mattered a hell of a lot more that I had those good years than what my tax rate was in them.
Think about it. Opportunities matter. The little changes in tax rate we are discussing? Not so much.
Perhaps this is class warfare. What seems to upset Doug is that the 99% has the effrontery to try and protect it’s interests, instead of collectively tugging their forelock and saying “thank you sir, can I have another”?
Politics: yes, of course it is.
Class warfare: You keep using that phrase. It doesn’t mean what you think it means. For one thing, it meant a wee bit more than quibbling over ~3% or so on the top marginal tax rate. For another, I’ve noticed that it’s only “class warfare” when the policy change under discussion is a Lefty one. When it’s a move to the Right, well, that’s not class warfare because Shut Up, That’s Why.
Doug, coupla questions:
1) Were the original Bush tax cuts “class warfare?”
2) Are the various present-day Republican proposals to cut spending on things like Medicare and Social Security “class warfare?”
Yes or no?
@ Rob…
And a third question…
Does de-railing tax cuts that benefit every class in order to preserve tax cuts that benefit only the very wealthiest class constitute class warfare?
What’s that noise I hear? Crickets?
I have a relative who lives in an all handicapped apartment complex that is federally funded. All the residents are in wheelchairs (apartments are specially equipped for them).
The residents there are among the most vulnerable members of society, and they live in perpetual fear of having the funding cut for their wheelchairs, and for the complex. The fears are well founded, when it’s time to cut, those with the least money and power have the most to worry about.
I find it curious that when the wealthiest members of society face a tax increase that will, at worst, cause them to forgo a few luxury items out of the many they enjoy, it is class warfare. When some poor guy with no legs lies awake at night worrying about losing his wheelchair benefits, its cutting government waste.
@anjin-san: Clearly, Anjin, we must lay prostrate at the feet of America’s job creators.
Readership: 1. Doug/Tsar: 0.
I think many of you need to read Kiyosaki (the “Rich Dad, Poor Dad” series). It’s not “the Rich” that get soaked by these things; it’s the “upper crust” of the Professional Class — Engineers, Lawyers, MBAs … those foolish enough to get their income as “salary”.
The Rich have plenty of ways to keep Uncle Sam from grabbing their money. They don’t really care. All they need to do is change their monetary flow a bit.
How much “salary” does Warren Buffet make? Hint — it’s well below the $250k mark.
@John D’Geek:
I have not read that book, but I think I’ve read many similar, I think. I’d put “Your Money & Your Brain” by Jason Zweig at the top of my list. If you could only read one …
Here’s the thing, speaking as someone who has been top bracket, if you are at $250K+ and are sweating tax rates, you aren’t doing it right. You probably aren’t sheltering the max in retirement plans each year, every year. You probably over-consume and under-save. You probably blame other people because the lease on your Mercedes is too darn high.
As I mentioned in another thread, PT Barnum got a lot of it right in 1880. I know I’m not the only one here who likes that booklet. Men of a certain age look back and see the importance of thrift.
John – oh, certainly, I’m all for changing the rules on capital gains, carried interest, and my favority hobbyhorse, the estate tax.
However, a – what is it, 4.6%? – increase in taxation on salaried income (AGI) above $250k is not soaking, as far as I’m concerned. It’s an increase. Or, put another way, a reversion back to the higher rates that were in place 12 years ago.
This will impact the sorta-kinda rich more than the really rich, certainly. It’s not my ideal, no. It is a (minor, as Obama himself admitted) tweak in the right direction.
For the most part almost everything coming out of DC these days has less to do for the greater good, than for a party’s own political expediency. Obama, though, is a poster child for political self salvation in his self-serving rhetoric and policy-making — A King among Kings. Everybody and everything is expendable except for Obama.
Greater good? What are you, some kinda of commie?
Class warfare: when politicians do things that are helpful to non-rich people and not as helpful, or harmful, to rich people.
Not class warfare: when politicians do things that are helpful to rich people and not as helpful, or harmful, to non-rich people.
Makes perfect sense.
@jan:
Just curious … but in what way is Obama “self” serving?
Don’t you mean he’s a traitor to his new, rich, class standing?
@jan:
Interesting talking points. You guys seem to have this thing about
using the word “king” to mis-characterize Obama.
Link-trolling hack.
Please delete/disregard my last comment. I promised not to engage in personal attack. Sometimes, I just can’t help myself.
@jan: This is just gibberish. Come on, Jan, is it so hard to make a coherent point? Have you run out of right-wing blog posts full of deliberately misunderstood statistics? It feels like you’re not even trying anymore.
By the way, still waiting for you to explain why you haven’t left California yet.
@John D’Geek:
Exactly! That’s what most of the people here don’t understand. The “upper crust”, meaning the billionaires, or the “old money”..or those who have wealth that goes back generations…those people will ALWAYS find ways to beat Uncle Sam, no matter who you elect or who you think has a fair tax plan. We think that we can make these extraordinarily wealthy people pay more taxes, but the truth is they actually have the legal teams, the knowledge, and resources to always avoid it…and a few may even laugh at you in the process. So, when we talk about taxing the rich, the reality is we are talking about those who “just got” their higher salary or who just came into the upper middle class..as opposed to being born into “old money”. We are looking at those who may be considered “well to do” or your famous athletes/entertainers..basically people who might have been born into a middle class or poor environment, but who “made it” and now have money. That is the reality.
@John D’Geek: @John D’Geek: I’ve read Rich Dad, Poor Dad too, and I suggest everyone to read that book.
@Christi: and of course attorneys, doctors, and other high paid professionals who are “well to do”…but certainly not the billionaires who may say “make me pay higher taxes” because they know that they can always avoid it or find a way to get out of it. I’m not saying not to tax the rich/well to do…but many of us are a bit naive in thinking that any president will really tax those with the most money to spare.
If we wanted to tax the rich in ways they could not “beat,” we could so. We just lack the will to do so.