Friday, November 12, 2010

How Congress Can Avoid Cutting Taxes on the Wealthy

I'm among those unsurprised by the skeptical reaction to the Democratic Party's desire to cave on the issue of tax-cuts for the wealthiest Americans. After all, if the Party wanted to extend the cuts for everybody but people earning $250K+ (or, as was suggested in the alternate, raising that threshold to a higher amount, perhaps even $1mm), it could have done so before the election and have attempted to use the issue to distinguish itself from the Republicans.1 The Republicans would have been in the position of having to filibuster a tax cut for most Americans in the name of the rich, or would have had to allow the bill to pass thereby ending the chance of additional tax relief for the rich until the next election. I've already speculated as to why that did not occur - too many Democrats similarly prioritized tax cuts for the rich. Michael Tomasky shares a similar perspective, first noting that many people in the $250K income range aren't necessarily "rich" as the term is generally understood, but more to the point:
Pelosi didn't force that vote for one simple reason: it would have lost. Why? Because enough Democrats would have voted with the GOP to make it fail. These Democrats were afraid of being called tax increasers, even if it was only on the top 2%. But a lot of them also simply believe in the Bush tax cuts as a matter of policy.
But in the wake of Nancy Pelosi's stance against extending tax cuts for the rich, Tomasky wonders what sort of leverage could be applied to get a bill through Congress. That would be the estate tax.

Before the election the Democrats were eager to compromise on the estate tax, and to set very high exemptions for estates before the tax would kick in. If anybody was advocating for allowing the estate tax cuts to simply expire, neither the media nor anybody else in Congress was paying attention.2 Any bill that partially extended the Bush tax cuts - a process better described as canceling in part the tax increases scheduled by George W. Bush and the Republicans then in control of Congress - would have resulted in an estate tax applicable to only a tiny number of gargantuan estates. I suspect Pelosi is planning a game of chicken involving the estate tax. Why is that gambit politically viable now when it wasn't prior to the election? Why might it work even though pretty much all Democrats would oppose reversion? Because if nothing is done during the lame duck session, along with the tax increases Bush and the Republicans scheduled for ordinary income, the estate tax reverts to its pre-2001 levels.

1. An anonymous Chief of Staff for a Democratic Senator writes, "If we want low and middle-income Americans to think we don't have the spine to fight for them, then how are we going to convince them to vote for us?" With all due respect for whomever his boss may be, I assume the question is rhetorical.

2. Sen. Kent Conrad (D-N.D.) lectures his colleagues on balancing the budget,
"If some of us have to sacrifice a political career to get this country back on track, then so be it."
Am I wrong in inferring from his statement that he's speaking exclusively of others - that is, his position is safe and will likely be strengthened by the positions he's taking?


  1. Of course people in the $250,000 range are rich. This is especially the case when you consider that this is after deductions.

  2. Again, it depends on how you define "rich". Read the link to Tomasky for his interpetation.

  3. Teacherpatti11/19/10, 9:55 AM

    $250k a year sure sounds rich to me! But, I guess it also depends on what you have coming in vs. going out. If you have a huge McMansion, 5 kids in college and are paying to support your deadbeat 37 year old kid, then that $250k isn't going to go as far as it would for me, a DINK with a small house. But give me $250k a year and shit, I'll be set for awhile :)

  4. Give you $250K as an individual, and my guess is that your first year's post-tax income will help you get your financial ducks in a row, and the second year's income will have a much more significant impact on your lifestyle. Add a spouse and a couple of kids and that may take a couple of years. Then you start building assets.

    But even in a low cost-of-living part of the country, even a sustained income of $250K/year isn't going to put you into the upper echelons of society. Maybe, adjusted for inflation, back in the 60's, but not these days....