Due to an editing error, the last name of Democratic pollster Geoffrey Garin was omitted from an article Tuesday about progressivity in the tax bill.
Is it fair for a single person with a taxable annual income of $17,600 to pay the same marginal tax rate as a millionaire?
Fair or not, that's how the Senate tax overhaul bill would work. The dramatic flattening-out of rates has led some critics to wonder whether progressivity -- a fundamental tenet of the income tax since its beginnings -- has been too casually sacrificed on the altar of closed loopholes.
The issue has gotten curiously little public attention during the tax bill's joy ride through the Senate these past two months, but it's one that some believe has the potential to create a strong political backlash -- either now or, more likely, later.
Today Sen. George J. Mitchell (D-Maine) will bring the question of progressivity onto the floor of the Senate. He will introduce an amendment adding a third rate of 35 percent for wealthy taxpayers (on top of the 15 percent and 27 percent rates in the current bill), and plowing the revenues raised by this third rate into bigger tax reductions for the middle class.
No one thinks Mitchell's amendent will pass; few think it will come close. Even such liberals as Sen. Edward M. Kennedy (D-Mass.) and Sen. Gary Hart (D-Colo.) plan to vote against it.
It has become accepted wisdom among senators of both parties and all ideological stripes that the tax bill is a political and policy "winner," that it's fragile and that the glue needed to get it through the Senate is the 27 percent top rate. (Many of these same senators believe that the final bill after House-Senate conference will have a top rate somewhat higher.)
If the Mitchell amendment fails, progressivity may live on as a campaign issue. It could be raised as early as this fall in the television spots of challengers to senators (especially Republican senators) who are up for reelection.
What gives progressivity its potential political punch is that it's a pure "class" issue. So far, the curbing of Individual Retirement Accounts (IRAs) has generated much more popular protest, but IRAs aren't a class issue. They're a shelter for the middle class, and an even better shelter for the wealthy; all taxpayers like them.
Not so with a bill that flattens out rates as a trade-off for eliminating loopholes. This approach, Mitchell writes, is "a strange version of Robin Hood -- take from the rich with shelters, give to the rich without shelters." It is grist for "us v. them" political appeals -- always a Democratic long suit and a Republican soft spot.
"You can almost write the ad for the fall campaign now," one Democratic strategist said. "It goes: 'This summer the Senate had before it a bill that taxed millionaires at the same rate it taxed middle-income families. A bill that gave the wealthy three times more in benefits than it gave the working class. Senator fill-in-the-blank had a chance to to make that bill fair for everyone. But he voted no.'"
Mitchell, who serves as chairman of the Democratic Senatorial Campaign Committee, insists he is not playing the skunk-at-the-tea-party politics of introducing a bill he knows will fail in order to force a recorded vote that his party can capitalize on at election time.
He has a long history of supporting progressivity, and he opposed the original Bradley-Gephardt Democratic flat tax proposal on those grounds. Still, he also notes: "Good policy and good politics aren't always mutually exclusive."
Just how the politics of this issue will play out is, of course, a matter of pure conjecture. But suppose a new tax bill is signed into law this fall; suppose it has a top rate in the 30 percent to 35 percent range (Reagan's orginal proposal was for a 35 percent top rate, the House bill has a 38 percent top rate), and suppose it's a "feel-good" bill that has politicans of both parties competing to claim parentage.
Will a senator who voted at some earlier point in the process to preserve a 27 top rate find himself vulnerable to 30-second TV spots pummeling him as a handmaiden of the well-to-do?
Democratic pollster Geoffrey doubts it. "By and large, people aren't offended by the lower top rates," said Garin, who has conducted two dozen focus group interviews on the subject over the past two years years. "The immediate concern is with loopholes. But that's natural -- they're reacting to the current system. When this bill becomes the current system, they'll react to it. It may take some time, though."
Other Democrats concede that low top rates appear to be popular with everyone. In Reagan's America, they say, even middle-class people expect to strike it rich, and when they do, they don't want to have to share it all with Uncle Sam.
The counterargument is that you can never repeal human nature; there's a soak-the-rich instinct in practically everyone, goes this argument, and the politics of resentment will always work.
Besides, the pro-progressivity forces have some powerful equity arguments to bring to the court of public opinion. For example: The 27 percent top rate would be the lowest for any Western industrialized nation. It would be less than one-third of the top rate of 90 percent that was on the books in this country in the 1950s, and it will be down substantially from the 70 percent rate of the 1960s and 1970s, and the 50 percent rate of the 1980s.
On top of that, if you look outside the income tax to all forms of taxation (sales, excise, user fees), it is clear that tax progressivity has eroded sharply over the past several decades.
Defenders of the flat tax concept point out, of course, that no one ever paid those high marginal rates. The key measure of equity is tax burden, not tax rates. That's where the loophole closing comes in.
But Mitchell notes that between 1965 and 1985, the one-tenth of taxpayers with the lowest incomes saw their overall tax burden rise by 30 percent, while the one-tenth of the taxpayers with the highest income saw theirs fall by 16 percent.
The Senate bill builds into the rate structure this diminished burden on the wealthy. In addition, because it tries to perpetuate the proportion of the tax burden that each income class currently bears, it provides the biggest increase in after-tax income to the wealthy. (This is because a tax saving in a higher income bracket yields more dollars.)
Mitchell's figures on the Senate bill show that a typical family earning more than $200,000 a year will receive a 1.4 percent increase in after-tax income, while a family that earns $30,000-$40,000 a year in taxable income will receive just a 0.4 percent increase.
According to Sen. Carl Levin (D-Mich.), about a third of the middle class actually would pay more in taxes under the Senate bill.
If that is true, and if that is the kind of bill that actually comes out of the legislative maw this fall, then sooner or later someone is going to have to pay for it. And the bill may come due on Election Day as well as on April 15.