Obama's Tax Plan May Be A Move In The Right Direction

This article describes Obama's plan to tax incomes above $1 million per year at a higher tax rate. In effect this would replace the alternate minimum tax (AMT) which was put in place years ago to insure that those with high incomes cannot avoid taxes by using a variety of deductions to reduce taxable income. The AMT has been a problem because it was not indexed to inflation. Consequently, it frequently required adjustments as wage inflation boosted upper middle income taxpayers into the income bracket that made them subject to the AMT.

The GOP will certainly oppose this proposal but it will enable Obama to draw a bright line between himself and the Republicans. They typically oppose tax cuts for the super rich, while simultaneously aligning themselves with populist positions on non-economic values issues such as abortion,"family values" and "real Americanism".

Friendly economists, who carry water for the GOP, will, of course, make an effort to blur the bright line drawn by the Obama plan. Mankiw, for example, is quoted in this article making claims about millionaire sources of income that blur the bright line. Others will also make the argument that it will discourage the wealthy from working, saving, and investing in the economy. Therefore, economic growth will slow down and jobs will be lost. Even though these claims are false, it will require that the evidence against those claims is presented, and it becomes an academic debate that will turn off the public. The plan will also be framed as class warfare against the rich. The GOP has been successful in making the case that raising taxes on the super rich is class warfare, while denying that shifting the tax burden from the super rich to lower wage earners is class warfare. Tax policy since the 1980's has, in fact, done exactly that. The highest marginal tax rates have been reduced substantially and income from capital gains and dividends is taxed at a lower rate than earned income from wages.

Hopefully, this will be the first among other tactics that the administration will use to draw a bright line between the values of the Democratic Party and the GOP. He has lost lots of support among those who voted for him by failing to do so. His efforts at bipartisanship, and his willingness to compromise on numerous issues have not helped him with his base. Regaining the initiative, and displaying leadership, may be more important to him than his efforts to attract low information voters to his cause.