If success in politics is a matter of upsetting the smallest possible number of people, the proposal for financing Barack Obama’s jobs bill should be a winner simply because 0.3 per cent is smaller than 3 per cent. That is the proportion of households with more than $1m in annual income, versus those making more than $250,000 (or individuals over $200,000). The latter group originally was slated to pay the nearly $500bn price; the new plan is for a 5.6 per cent income tax surcharge on the former.
But the actual maths may be simpler: 53 minus 4 is less than 50. Senators from the two states with the most wealthy residents, California and New York, balked at capping deductions on mortgage interest and municipal bonds that would have hit many merely upper middle class voters among their constituents. Without those four votes, a deal relied on Republican defectors to get to 50.
But is soaking the very rich a better or more equitable solution? The news in August that 1,470 millionaires paid no federal income tax whatsoever in 2009, or Warren Buffett’s assertion that he enjoys a lower rate than his secretary, have fanned calls for the rich to pay their “fair share”. The top half per cent of earners already pay quite a bit though – 23 per cent of federal taxes, despite earning only 15 per cent of all income in 2005. If social insurance and excise taxes did not hit the middle class disproportionately, the system would be even more progressive.
Mr Obama reacted neutrally to the millionaire tax, noting that he was “comfortable” with it but that the tax code still needs reform. He is right. Taxing the wealthiest will not create a job-killing disaster, but neither will it make a serious dent in fiscal imbalances. Doing that will require Washington to upset not 0.3 or even 3 per cent of voters but far more – perhaps even a majority.
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