A legislative proposal that was once on the fast track is suddenly dead. The Senate will not consider a plan to extract billions in extra taxes from mega-millionaire hedge fund managers.
The decision by Senate majority leader Harry Reid, the Nevada Democrat, surprised many Washington insiders, who saw the plan as appealing to the spirit of class warfare that infuses the Democratic party. Liberal disappointment in Mr Reid was palpable at media outlets such as USA Today, where an editorial chastised: “The Democrats, who control Congress and claim to represent the middle and lower classes, ought to be embarrassed.”
Far from embarrassing, this episode may reflect a dawning Democratic awareness of whom they really represent. For the demographic reality is that, in America, the Democratic party is the new “party of the rich”. More and more Democrats represent areas with a high concentration of wealthy households. Using Internal Revenue Service data, the Heritage Foundation identified two categories of taxpayers – single filers with incomes of more than $100,000 and married filers with incomes of more than $200,000 – and combined them to discern where the wealthiest Americans live and who represents them.
Democrats now control the majority of the nation’s wealthiest congressional jurisdictions. More than half of the wealthiest households are concentrated in the 18 states where Democrats control both Senate seats.
Says Mr Farrell:
If it is true that Democrats tend to represent richer districts, both basic logic and an elementary grasp of statistics should tell you that this does not imply that they represent richer voters. Indeed, not only does it not imply this, we know that it isn’t true.
I think this might be a tad out of date; as pointed out in his comments, Pew research seems to show Democrats slightly outpolling Republicans at the very top of the income scale. But the bigger problem is that this confuses the voting base with the constituency. Democrats indisputably represent more rich voters than Republicans; their constituency is the people in their district, not the people in their district who voted for them.
Moreover, politically, this matters a great deal. The guy from Heritage is actually making a good point: the constituency of the Democrats will force many of them to support the interests of the rich, even where they might ideologically prefer to oppose, because doing so is good for their district. Voters, especially poor voters, are highly influenced by local economic conditions. It is thus in Chuck Schumer's strong political interest to keep the financial services industry happy, whether or not they vote for him. Ditto Nancy Pelosi and Silicon Valley. Thus the current quandary on carried hedge fund interest.
The Democratic leadership seems to be increasingly drawn from its most affluent districts, because those districts are where the money is. This means that the Democratic Party as a whole will increasingly serve the interests of the affluent, even if the rich people in those particular districts don't vote for those politicians. Personally, as I said on Bloggingheads, I don't think this is that big a problem; rich voters are few enough that the service is likely to take the form of small but annoying items like the carried interest tax. But I can see why it worries Paul Krugman.