WaPo on the Democrats’ progressive tax plan

Last week congressional Democrats proposed a progressive tax plan for the middle class, and today the reliably Republican editors of the Washington Post say the new Democratic plan has some strengths. In search of a plan to close the wealth gap:

monopolybGLARING, AND growing, inequality of wealth and income is one of the most troubling issues facing the United States and other democratic, capitalist societies. So far, this threat to social stability and political legitimacy has proved as in­trac­table as it is worrisome. The lawmaker and the party that devise an effective solution could deserve a grand electoral prize.

Which brings us to the anti-inequality package that Rep. Chris Van Hollen (D-Md.), the top Democrat on the House Budget Committee, unveiled last week in hopes of tilting federal fiscal policy toward the “99 percent” and, implicitly, reinvigorating his party’s message. Mr. Van Hollen’s “Action Plan to Grow the Paychecks of All, Not Just the Wealthy Few” is worth examining on its merits — and because it foreshadows some of the ideas and arguments that President Obama will put forward in his State of the Union address Tuesday.

The representative’s plan is more ambitious than what the White House has in mind. Over the next 10 years, he would use $1.2 trillion in loophole-closings and tax increases on the wealthiest 1 percent to fund an equal amount in tax breaks for households making less than $200,000. He would impose a 0.1 percent levy on financial transactions to raise revenue while discouraging market-distorting computerized trading and “churning” of accounts; on the tax-break side, Mr. Van Hollen would create a $1,000 per worker “paycheck bonus” credit, among others.

Mr. Van Hollen deserves praise for thinking big about a big issue and for taking aim at the tax code’s undue preferences for investment income — what he calls “making [money] off of money” — and the upward bias of credits and deductions more generally. A particularly intriguing point is his suggested tax incentive for companies to shift spending from executive bonuses to wage increases. It would be all too easy, of course, to note the many ways in which his plan might be politically unrealistic, starting with the fact that it hinges on getting the disputatious European Union to coordinate its financial transactions tax with Mr. Van Hollen’s proposed levy so as not to drive U.S. financial business abroad. Mr. Van Hollen is surely right, though, to insist that policy should reward production more and speculation less.

Wait for it . . . the Washington Post, which several years ago partnered with Pete Peterson to write about the deficit, er, spread his propaganda, The Washington Post Lets Pete Peterson Write The News On The Deficit, [another Pete Peterson funded organization: Who’s Behind “Fix the Debt”?], are still deficit scolds more worried about reducing the federal deficit than they are about restoring the economic viability of the American middle class and the U.S. economy. I would point out that the quickest way to reduce the federal debt is to tax the top tiers of of income earners more. The tax code needs to be made more progressive.

Though commendably deficit-neutral in its own terms, Mr. Van Hollen’s concept (like Mr. Obama’s) has a big drawback: It spends all of the revenue from politically difficult tax reforms on politically popular tax relief for the middle class. Despite recent cyclical improvements in the federal deficit, the structural debt remains unsustainable in the view of the Congressional Budget Office. And it can’t be addressed without at least some of the $1.2 trillion Mr. Van Hollen would tax from the rich and give to everyone else.

“Cyclical improvements”? The deficit is falling at the fastest rate in 60 years due to the modest tax increases on the wealthy included in the budget deal reached after the 2012 election, and Medicare Is Not Such a Budget-Buster Anymore
due to the innovations and medical savings provisions of the Affordable Care Act. Those are public policy choices, not just “cyclical” market trends.

The Washington Post, concludes, oddly, that Van Hollen’s $200,000 level — which Congress typically uses to accommodate the East Coast elite in New York, Philadelphia, Boston, and D.C. due to the high cost of living — is too high.  Most “small businesses” also net $200,000 or less and pay taxes at the individual rate. Any business netting more than $200,000 really ought to be incorporated and paying corporate income tax. There is a logical explanation for Van Hollen to use the $200,000 level.

This is even harder to justify given that much of the benefit from Mr. Van Hollen’s proposal would flow to households that are decidedly not poor. Both substantively and symbolically, it’s a mistake to suggest that the United States can be made more egalitarian and more fiscally secure without asking anything of families making as much as $200,000 per year — nearly four times the median income. Government has a role to play in correcting skewed distribution of wealth and income, but its efforts should be focused on those who need help the most.

The editors do not seem to comprehend that this is about restoring the American middle class to grow the economy, it is not about public assistance programs to the poor, who would rather have a job with a living wage in a vibrant economy.

One response to “WaPo on the Democrats’ progressive tax plan

  1. You are right, Hollen, applies the benefits to those making $200,000 or less in order to capture the largest percentage of the 99% because that is what makes the program likely to continue. If it were a strictly anti-poverty program it would see the GOP axe faster than you could say Sunday dinner. As a middle and working class tax benefit program it is much more likely to gain popularity and help both those under the median income as well as those near the upper end of the middle.