POLITICS OCTOBER 27, 2010
View Jonathan Chait and TNR Executive Editor Richard Just as they chat about the Republican Party and tax cuts for the wealthy at The New Republic's Livestream channel.
It’s about providing an even playing field for opportunity, not the government sitting here saying, “This person here’s too successful, this one’s not, I’m gonna take from this one and give to that one.” That’s the principle.
Note that Cantor did not define his party’s philosophy as opposition to big government. He defined it as opposition to redistribution from rich to poor. In that sense, he was admirably straightforward in articulating the modern GOP’s flaccid commitment to shrinking government and its unshakeable commitment to opposing redistribution.
That principle lies at the heart of the next big legislative fight, over the extension of those parts of the Bush tax cuts that only benefit families earning more than $250,000 per year. In the Republican mind, President Obama’s opposition to those tax cuts is nothing more than a punitive measure against the rich. “The administration believes that we ought to pit one group of people—those who have less—against those who have more and vilify those who have been successful,” said Cantor. Since many people actually seem to believe that liberals favor higher tax rates on the rich primarily as a form of punishment, let me explain the actual rationale for progressive taxation.
Some liberals believe that income inequality is intrinsically problematic. Studies suggest that rising inequality tends to fuel financial crises—the middle class borrows beyond its means in a frantic race to keep pace with the rising living standards of the rich. Note that this argument says nothing about the rich being un-virtuous or deserving of punishment. It does, however, imply that, against a backdrop of rising inequality, reducing the income of the rich is useful, regardless of how you use the revenue.
And yet, you don’t need to argue for pulling down the rich in order to justify progressive taxation. The more durable rationale is utilitarian. It would be nice if nobody had to pay taxes. Given that we do, though, shifting a greater share of the burden onto the rich causes less hardship. (Raise Paris Hilton’s taxes by 1 percent and that’s one less vacation home for her grandchildren; raise her maid’s taxes by 1 percent, and her kids are sweltering because they can’t afford air-conditioning.) Now, at some point, you can pile the tax burden on the rich so high that you impair economic growth. But recent evidence suggests the Clinton-era tax rates proposed by Obama would have minimal economic impact.
The key thing about this rationale is that it’s premised on the government needing money to finance its programs. Unfortunately, the tax debate tends to treat the social justice question as entirely separate from the fiscal needs of the federal government. A recent Washington Post news story revealed this tic of conventional thought. “For months, President Obama has stressed the budgetary rewards of eliminating tax breaks for the wealthy,” reported the Post. “But many Democrats see a more fundamental reason to let the Bush-era tax cuts expire in January: narrowing the growing divide between the rich and everyone else.” These needn’t be separate issues.
The government does not have enough revenue to finance its spending. (And this would be true even if the Republicans’ proposed unspecified spending cuts were enacted in toto.) Raising taxes on income over $250,000 may cause some pain for the highest-earning 1 percent, but raising taxes on those earning less would cause even more pain. This logic, after all, was the original justification for progressive taxation.
Conservative rhetoric tends to treat the question of taxing the rich as unrelated to the demands of funding government. Republicans do this because polls show that the trade-offs required by lower taxes for the rich—higher taxes for the non-rich or reduced spending on government programs—are wildly unpopular. And so they proceed as if no trade-offs are required at all.
Presenting higher taxes for the rich as a punitive measure is a way of concealing such trade-offs. Republicans, the Post article noted, maintain “the correct response to income inequality is not more taxes on the wealthy but greater opportunity for those at the bottom of the income scale.” But of course the question isn’t whether to increase taxes on the rich or provide “opportunity”—generally unspecified—for the non-rich. It’s whether lower taxes for the rich are worth the cost of higher taxes or lower benefits for everyone else.
The moral principle expressed in opposition to progressive taxation by Cantor, and many other conservatives, holds that charging the rich higher rates is discriminatory. This would imply that, out of fairness, we must charge all taxpayers the same rate.
Well, it’s a principle. It does not, however, appear to be the Republicans’ principle. The most specific explication of the GOP governing agenda is the “Roadmap” authored by ranking Budget Committee member Paul Ryan. Few Republicans have openly endorsed the “Roadmap,” on account of its many unpopular provisions, but it is widely understood to represent the party’s policy beau idéal, with the only objections centering on political feasibility.
Ryan’s “Roadmap” would slash taxes on the rich and raise them on the poor and middle class. Under his plan, people in the middle of the income distribution would pay 18 percent of their income in federal taxes. Upper-middle-class taxpayers in the eightieth to ninety-fifth percentiles would pay 23 or 24 percent of their income in federal taxes. Above that level, tax rates would plummet, to the point where the richest 0.1 percent of taxpayers would pay an average federal rate of less than 11 percent.
Conservatives may object to a tax code that transfers resources from the rich to the middle class, but they thrill to the prospect of a tax code that does the opposite. The easiest way for them to escape the contradictions of their hypocrisy is to let them frame the issue as an isolated question of what tax rate the rich deserve to pay. They should instead have to answer: compared to what?
Jonathan Chait is a senior editor at The New Republic. This article ran in the November 11, 2010, issue of the magazine.