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Nancy Pelosi’s risky pander on taxes

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HOUSE MINORITY Leader Nancy Pelosi has an interesting definition of what constitutes the middle class. She believes it includes people earning anything less than $1 million a year — at least when it comes to tax cuts.

The California Democrat sent a letter Wednesday to House Speaker John A. Boehner (R-Ohio) calling on him to schedule an immediate vote to make permanent the Bush tax cuts for income below $1 million annually. President Obama’s position has been that the tax cuts should be extended, but only on income of $250,000 or less. Republicans, of course, insist on maintaining the upper-income tax cuts in their entirety, a move that would cost an estimated $850 billion over the next decade — $1 trillion, including the cost of paying additional interest on the debt, according to the Center on Budget and Policy Priorities.

How much federal revenue would be lost by moving the cutoff point to $1 million? Citizens for Tax Justice estimates it at about 43 percent in 2013, and there is no reason to think that the loss would be any smaller in future years. If anything, as the economy improves and incomes rise, the loss could be larger. And among the biggest beneficiaries of Ms. Pelosi’s “middle class” largess would be those earning more than $1 million a year, because they would enjoy the benefit of paying lower marginal rates on the first $1 million of income. Indeed, an estimated half of the benefit of the lower rates would flow to, yes, millionaires.

Ms. Pelosi and others who have taken this position, including Sen. Charles E. Schumer (D-N.Y.), in other words, are contemplating spending several hundred billion dollars over the coming decade to help the wealthiest Americans. That is several hundred billion dollars in a time of scarce resources and mounting debt — money that could be used, as Ms. Pelosi well knows, for worthier purposes.

House Republicans, as we have said repeatedly, are irresponsible for insisting that the Bush tax cuts be extended in total and in perpetuity. The tax cuts were recklessly unaffordable when adopted and are less affordable now. The frailty of the economy and the stagnation of wages counsel against allowing rates to rise next year for those earning less than $250,000. The best solution would be tax reform that would allow some lowering of rates while also raising badly needed revenue. But the looming expiration of the Bush tax cuts at the end of 2012 and the intransigence of the Republican anti-tax position does not come close to justifying Ms. Pelosi’s move to make even more of the Bush tax cuts permanent.

“By ensuring that the middle-income tax cuts do not expire, we will put money into the pockets of American consumers, saving the typical middle-income family thousands of dollars per year,” Ms. Pelosi wrote in her letter to the speaker. Ms. Pelosi’s office argues that this move was necessary because there is no way to obtain a House majority for allowing the tax cuts to lapse at the $250,000 level.

The Democratic leader’s position offers the political benefit of letting Democrats argue that the GOP opposed curtailing tax cuts even for millionaires. The risk of this particular pander, however, is that $1 million becomes the new, high bar; tax cuts below that level remain off-limits. Do Democrats really want their new slogan to be: “Almost as irresponsible as the Republicans?”

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