Republicans are calling the Democrat's proposal
to end the Bush tax cuts on the richest 3 percent a "tax increase," and
demagoging that it will hurt the economy and small business. This is
baloney, to put it politely. Let me count the ways:
Bush's ten-year tax cut was designed to end this year, so it's not a tax increase.
Ending it for the rich simply returns them to the Clinton tax rate,
which was hardly confiscatory (reminder: the Clinton years were damn
good for business).
Small businesses would barely be affected. Only 3 percent of small
business owners earn over $250,000. And because it's a "marginal" tax,
the Clinton rate would apply only to the portion of their incomes over
Yet extending the Bush tax cut to the richest Americans would
give them a $36 billion bonus next year. ($31 billion of this would go
to billionaire households.) And that $36 billion would be added to the
And it wouldn't even stimulate demand and jobs, because the very
rich save (rather than spend) more of their disposable income than the
rest of us.
Finally, ending the Bush tax cut for the top is fair. Income
inequality has become so grotesque that the top 3 percent of households
rake in almost a third of total income (the highest portion since 1928).
But by the time Democrats explain all this, it's too late. The Republican furor over a "tax increase" has framed the debate.
Republicans understand the art of tax demagoguery: Put the other side
on the defensive by forcing them to explain why a "tax increase" is
warranted and they lose regardless.
So instead of playing defense, Democrats should go on the attack.
Accuse Republicans of being shills for the rich.
And don't stop there. Do tax jujitsu. In addition to ending the Bush
tax cut for the rich, put forward another proposal for growing the
economy that cuts taxes on lower-income Americans.
Democrats should propose eliminating payroll taxes on the first
$20,000 of income, and making up the revenue loss by applying payroll
taxes to incomes above $250,000.
This would give the economy an immediate boost by adding to the
paychecks of just about every working American.80 percent of Americans
pay more in payroll taxes than they do in income taxes. And
because lower-income people would get most of the benefit, it's likely
to be spent.
It would also give employers an extra incentive to hire because
they'd save on their share of the payroll tax. And most of the incentive
would be directed toward hiring lower-income workers who have taken
the biggest hit on jobs and pay during the recession.
It wouldn't add to the deficit. Lost revenues would be made up by
applying payroll taxes to income exceeding $250,000. This is certainly
fair. As it is now, the Social Security payroll tax doesn't apply to any
income over $106,000. Having the tax kick in again at $250,000 would
draw on the top 3 percent of earners, who (as noted) now rake in a
larger portion of total income than they have in more than 80 years.