Who's Afraid of Taxing Rich People?

President Obama is creating a bipartisan commission to reach a consensus on how to bring down the deficit. Michael Tomasky has a great, thought-provoking blog post at the Guardian about the mechanics of deficit reduction, but I don't agree with his take on the politics of tax increases.

Tomasky beings by pointing out that the top marginal tax rate in the 1950s was 91% on income earned above $200,000. Today it's 35% on income earned over $360,000 (see this interesting PDF chart). Tomasky concludes that we should be talking more about raising the top marginal tax rate:

When Washington talks about the deficit and entitlements, people always talk about cutting. About living within our means ... And if you broach the subject of what the people at the very top should contribute to the maintenance of this condition, you're considered extreme and unserious.

On the contrary, it seems to me that everybody who doesn't self-identify as Republican talks quite a bit about making the people at the very top contribute more. House Democrats proposed to pay for health care reform with a surtax on the top one percent. Obama made it clear as early as 2007 that he wants Congress to cancel the Bush tax cuts for Americans making more than $200,000 -- which is effectively a tax increase. Calling for various new taxes on the rich isn't extreme, it's mainstream. Tomasky goes on to write ..

...the discussion of these matters is always about cuts that will be borne by middle- and working-class people and almost never about taxes on a class of Americans who've been having a financial orgy for the last 30 years.

I see it the other way around. I see that very few people (Republicans or Democrats) are talking about cutting services significantly (Paul Ryan, aside) or raising taxes on anybody in the bottom 95 percentiles of the tax bracket (VAT rumors, aside) because that would be considered politically unserious, or at least political suicide. Look at Obama's 2011 budget which cuts taxes for 95 percent of the Americans and raises the top income rate. Look at the House, which in addition to the surtax, has fought the Senate's efforts to impose an excise tax on expensive insurance plans because they might hit middle class families in the future.

To be sure, Tomasky is right that nobody is talking about returning the top marginal tax rate to 91 percent -- even he rules that out -- and his fundamental point is that Washington is skittish about drastically hiking up the top rate to as high as 50%. But Washington is skittishness about acting drastically about everything. No need for Tomasky to take offense on behalf of tax policy.

Tomasky beings by pointing out that the top marginal tax rate in the 1950s was 91% on income earned above $200,000. Today it's 35% on income earned over $360,000 (see this interesting PDF chart). Tomasky concludes that we should be talking more about raising the top marginal tax rate:

When Washington talks about the deficit and entitlements, people always talk about cutting. About living within our means ... And if you broach the subject of what the people at the very top should contribute to the maintenance of this condition, you're considered extreme and unserious.

On the contrary, it seems to me that everybody who doesn't self-identify as Republican talks quite a bit about making the people at the very top contribute more. House Democrats proposed to pay for health care reform with a surtax on the top one percent. Obama made it clear as early as 2007 that he wants Congress to cancel the Bush tax cuts for Americans making more than $200,000 -- which is effectively a tax increase. Calling for various new taxes on the rich isn't extreme, it's mainstream. Tomasky goes on to write ..

...the discussion of these matters is always about cuts that will be borne by middle- and working-class people and almost never about taxes on a class of Americans who've been having a financial orgy for the last 30 years.

I see it the other way around. I see that very few people (Republicans or Democrats) are talking about cutting services significantly (Paul Ryan, aside) or raising taxes on anybody in the bottom 95 percentiles of the tax bracket (VAT rumors, aside) because that would be considered politically unserious, or at least political suicide. Look at Obama's 2011 budget which cuts taxes for 95 percent of the Americans and raises the top income rate. Look at the House, which in addition to the surtax, has fought the Senate's efforts to impose an excise tax on expensive insurance plans because they might hit middle class families in the future.

To be sure, Tomasky is right that nobody is talking about returning the top marginal tax rate to 91 percent -- even he rules that out -- and his fundamental point is that Washington is skittish about drastically hiking up the top rate to as high as 50%. But Washington is skittishness about acting drastically about everything. No need for Tomasky to take offense on behalf of tax policy.