“Class warfare” or “math” — that’s what the debate over raising taxes on the wealthiest Americans has boiled down to.
The consequences of doing nothing in Washington usually are not great. In this case, however, if the “supercommittee” can’t produce an acceptable outcome to both the Democratic and Republican leadership, we all will suffer as Medicare and defense spending are scaled back dramatically. So called “triggers” related to spending cuts would be equally split between defense and non-defense programs — though Social Security and Medicaid would remain unchanged. Credit agencies also might consider another downgrade of American debt in the aftermath.
Obama drew a line in the sand this week by boldly claiming to veto any deficit reduction that does not include some higher taxes on the rich. Republicans have been fighting back, but it makes sense to blink on this issue and get to work on serious deficit reduction and tax reform.
Here’s how conservatives can make the case to themselves:
Invoke Ronald Reagan. He put capital gains in the same bracket as the highest marginal rate. So there is some Republican precedent for non-preferential treatment of investment income.
Consider it to be the ultimate Alternative Minimum Tax fix. Everyone seems to agree that the AMT was not intended to affect middle-class taxpayers. Now the new minimum is $1 million.
It’s good politics. There are so few people that have incomes of over $1 million you are simply not going to alienate very many voters, even if it doesn’t sit well with your base who all aspire to be in that bracket soon.
Of course, a lot of legislators on both sides of the aisle will see their own taxes rise under this plan. And that could be the biggest reason for the grandstanding. Rep. Michael McCaul (R-Texas), Senator John Kerry (D-Mass.) and Rep. Darrell Issa (R-Calif.) are worth nearly $750 million between the three of them. (See a full list of rich Republican and Democrat legislators here.)
Perhaps the millionaires tax is just a little too personal for Congress.