The Obama Tax Plan: A Test for America

Most Presidents of the United States end up with a catchphrase attached to their tenure, a memorable line that defines them. The buck stops here. Ask not what your country can do for you. Tear down this wall! President Obama last week may have muttered his.

“This is not class warfare,” the President declared last Monday as he unveiled a new set of proposals for hiking taxes on wealthy taxpayers. “It’s math.”

GOP leaders on Capitol Hill appear to have done the math — on what the White House proposals would mean for them personally — and they don’t much like what they see.

Millionaire members of Congress spent last week blasting away at the White House tax plan, an assault that prompted one group of affluent Americans who support higher taxes on America’s wealthiest to circulate a clever video that blasted away at the congressional millionaires. The video, in turn, infuriated wealthy congressional defenders of tax breaks for the rich even more.

“I’m not looking to raise taxes on me, no, but I am also not looking to raise taxes or anyone with incomes higher than me or incomes lower than me,” Rep. John Campbell from California fumed to Fox News, “because that’s not what got us into this problem and that is not what is going to get us out of this problem.”

Campbell and his deep-pocket pals have reality upside down, again. Massive tax breaks for wealthy Americans have contributed mightily to “this problem” — the nation’s fiscal crisis — and if the nation doesn’t start undoing those tax breaks for the rich, the only alternative will be massive cutbacks that hurt working families.

That’s what President Obama meant when he asked Americans to “do the math,” and the White House tax plan announced last week definitely does start the nation down the “undoing” road.

The specific proposals in the White House plan — most notably provisions that would let the Bush tax cuts expire for couples over $250,000, limit how much affluents can trim their taxes with itemized deductions, and end the loophole that saves hedge fund managers $200,000 on every $1 million they make in “carried interest” — would raise about $1.5 trillion over the next decade.

But the President last week went beyond these specifics. He called on Congress “to undertake comprehensive tax reform” that would move the nation to “a simpler, fairer, more progressive tax system than we have today.”

On this future system, the White House didn’t offer specifics. The President did offer one overarching principle, the notion that no household making over $1 million should pay less of its income in taxes than middle class families pay — what the President is calling the “Buffett Rule,” in a nod to the billionaire whose attacks on tax unfairness have re-energized the tax reform debate.

The White House may not be offering specifics on how to implement the Buffett rule — or “comprehensive tax reform” in general — but progressive tax advocates certainly are. They rushed last week into the breach.

The most detailed offering came from Citizens for Tax Justice. CTJ released a report that surveys options that range from ending preferential treatment for capital gains — the big reason so many rich pay so little in taxes — to erasing the “deferral” rules that help corporations sidestep taxes, a key driver of the executive pay windfalls the Institute for Policy Studies documented last month.

No one in the Capitol Hill know expects either these broader reforms or the measures that the President proposed last week to go anywhere in Congress over the next year. At this point, the tax wars seem to be all about positioning for the 2012 elections and the new Congress that begins in 2013.

In this positioning dance, GOP leaders in Congress are scrambling, somewhat desperately, to figure out how to defend the tax status quo. Billionaire Warren Buffett's outspoken attacks on a tax system that has him paying 17.4 percent of his income in federal tax while his office employees pay, on average, 36 percent have congressional apologists for grand fortune clearly off balance.

GOP leaders, in their desperation, have resorted to insinuations that Buffett must be hiding some deep dark secret. By the end of last week, they were demanding that Buffett disclose his tax return.

“I’d love to see Buffett’s tax returns so we can see what he’s really doing, because he’s kind of operating in the dark here, making some claims,” Senator Jim DeMint from South Carolina told one interviewer.

Buffett, added Rep. Tim Huelskamp from Kansas, is “afraid to show the proof” — as if the “proof” that substantial numbers of wealthy Americans are paying tiny percentages of their incomes in taxes hinges on one billionaire’s tax returns.

The “proof,” in reality, is coming from every statistical direction. The nation’s top 400 taxpayers paid on average, the IRS reports, just 18.11 percent of their incomes in tax in 2008, about what Buffett paid last year. A tenth of Americans making between $10,000 and $20,000, notes the Center for American Progress, pay taxes at higher rates than a quarter of our millionaire earners.

How did this state of affairs ever come to be? Vanderbilt University tax analyst Larry Bartels last week offered one explanation.

Our current tax system, Bartels suggests, reflects “a broader pattern of policy-making skewed toward the interests of affluent citizens.” In a distinctly unequal United States, “low-income people are likely to get their way only when their preferences happen to agree with the preferences of high-income people.”

The upcoming battle to enact the tax increases on the wealthy the President proposed Monday, Bartels feels, may force us to face more fundamental truths.

“If our leaders cannot bring themselves to support even this timid tax increase for the most fortunate Americans,” he observes, “that will be bad news both for our fiscal prospects and for our civic faith that democracy can function effectively in a society marked by vast economic inequality.”

This piece originally appeared in Too Much, the Institute for Policy Studies weekly on excess and inequality.