Income gap hangs over tax debate
Thursday, October 14, 2010
For months, President Obama has stressed the budgetary rewards of eliminating tax breaks for the wealthy. But many Democrats see a more fundamental reason to let the Bush-era tax cuts expire in January: narrowing the growing divide between the rich and everyone else.
When Congress returns to Washington next month, a solid core of Democratic lawmakers says it will urge party leaders to seize a rare opportunity to reverse three decades of rising income inequality by resisting any effort to extend the cuts for the richest 2 percent of households.
Obama and Democratic leaders want to let those cuts expire. But they are playing down the social-justice angle - fearful, said Democratic congressional aides, of fanning conservative allegations that Obama is a closet socialist looking to redistribute wealth.
"I find it ironic that we're nibbling around the edges on this issue," said Rep. Raul Grijalva (D-Ariz.), co-chairman of the House Progressive Caucus. "I talk about the deficit because it's the party line right now. But this is a disparity issue. It's about poverty. It's about fairness. And, as Democrats, we need to stand for those things."
Republicans, who want to extend the cuts for everyone, say the correct response to income inequality is not more taxes on the wealthy but greater opportunity for those at the bottom of the income scale. They accuse Democrats of waging "class warfare" in a bid to cling to power in the Nov. 2 congressional elections.
"The administration believes that we ought to pit one group of people - those who have less - against those who have more and vilify those who have been successful. That's not what America means to me," said Rep. Eric Cantor (Va.), the second-ranking House Republican. "All of us want to make sure that the benefits of society flow to everyone and not to a selective few. I just disagree that it's government's job to confiscate the wealth of some and redistribute it to others."
With the recovery flagging and some influential economists urging lawmakers not to raise anyone's taxes, many analysts expect lawmakers to extend all the cuts, if only temporarily. One potential compromise: Democrats could offer a one-year extension of tax cuts for the rich in exchange for GOP support for additional measures to spur hiring, such as a payroll tax holiday or a package of business tax breaks that Obama recently proposed.
But Obama campaigned on a vow to repeal the cuts, and many Democrats say even one more year of lower taxes for the rich would amount to a betrayal.
"I just really believe it's an argument we can win," said Rep. Tim Ryan (D-Ohio). "If you look at our tax structure from World War II to 1980, we had a system where the wealthiest paid more, we kept reinvesting back into our country, and we had a strong middle class." Since then, the rich have raked in a growing share of the nation's income even as their tax rates have fallen. "It's just been this sucking sound up the ladder to the wealthiest Americans," he said.
Using the tax code to address income inequality has been a staple of Democratic politics at least since the Clinton presidency, and the idea has been endorsed by some of Obama's top economic advisers.
In a 2008 speech just before he was named director of the National Economic Council, Lawrence H. Summers said rising income inequality presented "a critical problem of legitimacy" for U.S. capitalism.
A year earlier, Summers and Jason Furman, now his deputy, argued in a Hamilton Project paper that raising taxes on the rich - "progressive taxation" - is the "preferred path" to "offset some, but not all, of the increase in inequality."