$366 Billion Gambit Puts Low-Income Programs at Greater Risk

I think House Minority Leader Nancy Pelosi is very smart and politically very shrewd. And she can generally be counted on for progressive leadership.

So I was surprised — and dismayed — when I read that she wanted the House to vote on an extension of the Bush tax cuts that would raise marginal tax rates only for millionaires (and billionaires, of course).

As you probably know, the Obama administration wants the top tax brackets for couples with incomes over $250,000 to revert to their pre-Bush rates.

About 2% of households would pay some fraction of their taxes at a 3% higher rate — and if they’re wealthy enough, another fraction at a 4.6% higher rate.

Now Pelosi sweeps into what the administration quite generously defines as the middle class taxpayers who earn four times as much.

Why would she do this?

Surely not because she buys into the Republicans’ purported defense of “job creators” — in this case, the small businesses who pay taxes at individual rather than corporate rates.

As Howard Gleckman at the Tax Policy Center wrote during the last tax cut kerfuffle, many of the relatively few who’d pay more if the top brackets reverted are doctors, lawyers and owners of a lot of real estate — hardly the seed beds for new jobs.

Might Pelosi have tried to ballpark the Occupy movement’s 99% versus 1% dichotomy? Under her proposal, about 99.9% of households would pay all their taxes at the current lower rates.

But, says Citizens for Tax Justice, millionaires would reap about 50% of the tax benefits if the threshold were raised as Pelosi proposes because they would pay at the lower rates for all their income up to $1 million.

Not their gross income, of course, but their salary income after all the exemptions, deductions, credits and the like that they can claim.

Most of their investment income would still be subject to the lower capital gains and long-term dividend rates, unless Congress decided against extending these.

Which it won’t because, among other things, higher rates would also hit middle class households, which everyone seems to agree should, at least for now, be protected.

Pelosi says the Democrats are trying to move the tax cut extension process forward.

More likely she’s trying to force House Republicans into voting against her proposal because, as she frames it, that would show they oppose “middle class tax relief” unless it’s “coupled with tax breaks for the wealthy that increase the deficit and do not grow the economy or create jobs.”

A nice talking point for the Congressional campaigns, but a highly problematic strategy.

Because once the Democratic leadership has drawn the line in the sand at $1 million, how will it back up from there?

Won’t negotiations instead proceed from that point — assuming Republicans are ultimately willing to negotiate on the brackets at all?

Not likely when they can hold all the tax cuts hostage — plus the “full faith and credit” of our government.

But say, for the sake of argument, that the Republicans were willing to accept the new $1 million threshold.

The extensions package would then save 44% less than the administration’s $250,000 threshold would achieve, according to Joint Tax Committee figures reported by the Center for Budget and Policy Priorities.

The administration’s savings are no great shakes — $829 billion over the first 10 years.

But $366 billion isn’t chump change, especially when Republicans and Democrats alike have made deficit reduction a top priority. So, as CBPP says, policymakers would go looking for more savings to make up the difference.

And where do we think they’d look? Not in defense, since members of both parties are already upset about the cuts imposed by the Budget Control Act.

Which takes the third largest chunk of the federal budget off the table — and by far the largest that Congress can tackle through annual appropriations.

Programs that benefit low-income people would thus be highly vulnerable — and indeed, will be if undeniably wealthy households are merged into the middle class our leaders are so eager to foster and protect.

Not, I trust, what Pelosi intends. Nor high-ranking Senator Charles Schumer, who’s long favored preserving the Bush tax cuts for households earning up to $1 million.

But it may be hard to put the genie back in the bottle now.

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One Response to $366 Billion Gambit Puts Low-Income Programs at Greater Risk

  1. [...] as House Minority Leader Nancy Pelosi proposed, would make things worse. I’ve already given some of the reasons I think so. Here’s another — not tactical like Pelosi’s recent [...]

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