Republicans want to raise taxes on the poor. Why?

July 25, 2012

As the top Republican on the Senate Finance Committee, Orrin Hatch is the Republican point man on taxes in the Senate. And he's got a plan. It's called the Tax Hike Prevention Act of 2013.  He's even got Mitch McConnell, the leader of the Senate Republicans, as a co-sponsor.

Hatch’s plan would extend all the Bush tax cuts for another year. It would keep the alternative minimum tax in check. It would direct the Senate Finance Committee to begin working on tax reform. Just about the only thing it wouldn't do is prevent a tax hike from occurring in 2013.

That’s why you got to read all the way to the bottom of these things. Right there in the news release, second paragraph from the end, it says:

“There is no extension of the payroll tax cut in the amendment.  In addition, the increased spending through the tax code from the partisan 2009 stimulus law (ARRA) is not included in the amendment.”

So the news release for the Tax Hike Prevention Act of 2013 says there are tax hikes that aren’t being prevented by the Tax Hike Prevention Act of 2013. Gotta love Congress.

The most reliable fault line in American politics is taxes. Democrats and Republicans might switch sides on individual mandates, on civil liberties, on government secrecy, on cap-and-trade, and much more. But if you can count on anything, it's that Democrats want to raise taxes and Republicans want to cut them.

Actually, these days, you can't even count on that.

Tax policy right now is weird, and it’s weird because huge portions of our tax code are expiring. The law, as it’s currently written, says they’re just going away. The Bush tax cuts, which are worth around $5 trillion over the next decade, are set to disappear at the end of the year.

But they’re not the only tax cuts set to expire. There are also the tax cuts that President Obama passed in the stimulus and renewed in the 2010 tax deal -- things like the expanded child tax credit, and the payroll tax cut. And, importantly, these are tax cuts that mostly help lower-income Americans. They’re progressive tax cuts. And Republicans don't want to extend them.

Citizens for Tax Justice looked at just two of these provisions, the expanded earned income tax credit and the expanded child tax credit, and found that if they expire, 13.1 million families would face an average tax increase of $843.

So how come that’s not a tax increase? How come that isn’t breaking the pledge to not raise taxes? Judging from the responses New York Times's Jonathan Weisman got when he asked Republicans that question, the answer seems to be that if Barack Obama passed it into a law, it’s not a tax cut. It’s stimulus.

Kevin McCarthy, the number three House Republican, said:

The president said if you pass the stimulus, unemployment would never go above 8 percent. We’ve had a 41-month experience that that is not true and hasn’t been effective. One thing Republicans have always said is that they want a form of accountability.

That’s just a non sequitur. It has nothing to do with the question. And leaving aside the point about the stimulus, the fact is that you cannot argue for the Bush tax cuts because they’ve worked so well in the past.

We spent the 2000s living under the Bush tax cuts and it was one of the worst economic expansions this country has ever had. The 1990s, with their higher taxes were inarguably better. Indeed, as the above graph shows, the very best periods of growth we’ve had in this country have been under high marginal tax rates, as high as 80 or 90 percent. I’m not saying we should go back there, but that’s what McCarthy’s argument would suggest.

Over on the Senate side, Antonia Ferrier, a spokeswoman for Orrin Hatch on the Senate Finance Committee, asked,

What happened to the failed stimulus being ‘targeted, timely and temporary’?

There’s something to that. Democrats did say the stimulus was going to be temporary. That’s why these provisions are expiring.

But the extension of the Bush tax cuts was also temporary. That’s why they’re expiring, too. The argument in 2010 was that the economy was incredibly weak, and we couldn’t possibly raise taxes. If the economy remains too weak to raise taxes right now -- which is core to the Republican case for extending the Bush tax cuts -- then you can’t raise them on the poor, who, under any accounting, need more help than the wealthy. And if the economy is not too weak and so it’s time for the extraordinary help we’re offering to end, then you can also raise taxes on the rich, who under any accounting, can bear tax increases better than the poor.

A third argument is, as Ferrier put it, that these aren't tax cuts at all. They are "expanded stimulus spending through the tax code.”

There's truth to this, too. A lot of our tax code is comprised of policies that are better understood as spending. But these policies don't really fit. The Child Tax Credit was expanded in the stimulus, but it was also expanded in the Bush tax cuts. Republicans have never suggested that the lower-income provisions in the Bush tax cuts aren't really tax cuts. And no one has ever suggested the payroll tax cut is anything less than a tax cut. So when those provisions are tweaked in other bills, it doesn't make sense to suddenly redefine them as "spending" rather than "tax cuts."

There's also the issue that many of these benefits go to people who don't pay federal income taxes. As we've discussed on the blog before, that's a very misleading measure: The income tax is an unusually progressive tax. But it's not the only tax. Americans also pay payroll taxes, and state and local taxes. As this graph from Citizens for Tax Justice shows, when you add those taxes into the total, most Americans have a significant tax liability:

But even putting that aside, this objection doesn't explain the Republican willingness to let the payroll tax cut expire, as that tax cut clearly helps taxpayers who have a positive income tax liability.

There's no viable conclusion here save that the traditional understanding of taxes in American politics is wrong. Republicans are very committed to cutting taxes on the rich, but they're willing to let them rise on the poor. And Democrats are more or less the reverse. My hunch is that this speaks to ongoing differences in the economic theories of the two parties, where Democrats believe the path to prosperity runs through increased demand, which requires getting money into the hands of those who will spend it, and Republicans believe it runs through unlocking the potential of "job creators," which means cutting taxes on the very successful.

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Sarah Kliff | July 25, 2012