Forget about Economics – Is the Millionaire’s Tax Good Politics?

by Joshua Tucker on August 24, 2010 · 7 comments

in Public opinion

In the past couple weeks, there has been quite a bit of discussion about the tax rates of the rich and the super rich. Much of this is of course motivated by the coming expiration of the Bush tax cuts (see Paul Krugman’s column yesterday for example.) James Surowiecki takes this one step further by making a very thought provoking argument in The New Yorker that our current system of progressive tax rates is hopelessly out of date with its top bracket starting at $200,000 a year for individuals and $250,000 a year for households. He adds the memorable observation that Lebron James and his dentist both probably pay the marginal tax rate on additional income. Nate Silver responded to Surowiecki with a discussion of the economic implications of some of Surowiecki’s proposals, concluding that:

Let’s say we go with the plan of taxing marginal income above $1 million at 3 percent, and marginal income above $5 million at an additional 3 percent. That would produce a theoretical $39 billion per year. However, there would be some productivity losses, and perhaps some additional offsets resulting from people finding ways to transfer their income into more tax-advantageous activities, so perhaps revenues on the order of $35 billion per year, or $350 billion per decade, are more realistic.

I think the economic implications of the proposal are interesting as we head into an era when we need to consider all possible sources of tax revenue, but I am even more intrigued by the potential political implications of the tax. With the dominant political narrative these days being how President Obama is having trouble delivering a credible narrative of what he actually stands for, wouldn’t taxing the super rich be a political no brainer for the Democrats in the US? Wouldn’t this be an outstanding question for all Democratic candidates for congress to be able to ask their Republican opponents where they stand on the issue? Think the ground zero mosque in reverse. Commercials could be run saying “my opponent wants to keep taxes lower for millionaires – I want to keep them lower for you.” It seems like such a simple message that it would be perfect for a campaign year where the dominant trend – the state of the economy when you are the incumbent party – is running against you.

So I went looking for some data on this. I unfortunately couldn’t find any public opinion polls about a millionaire’s tax, so I’m hoping readers of the Monkey Cage can help. What I did find was the following, admittedly from last year, over at the Gallup website:

Rich_Income_Tax.gif

While I’d like to see these data broken down by party, it sure seems like there is plenty of support out there for increasing the tax burden on the right.

So I’m throwing the question out to readers of The Monkey Cage: convince me why it would be a bad idea for the Democrats to double-down on this taxing the rich issue and start pushing proposals for new tax brackets for those making over $1 million a year and those making over $5 million a year? Why couldn’t the Democrats emulate the Republicans 2004 gay marriage strategy? I’m particularly interested in comments from anyone who follows New Jersey politics, where Republican Gov. Chris Christie obviously did not fear vetoing a millionaire’s tax in his state. Are there any surveys of voters’ opinions in the aftermath of his veto out there?

*****

[I just came across this post from Ed Kilgore that makes a very similar point to the one I’ve made here, so I want to be sure to give him an ex-post hat tip….]

{ 7 comments }

Eric McGhee August 24, 2010 at 2:34 pm

The problem is that Republicans generally want to extend *all* the tax cuts (which actually doesn’t cost that much more than extending them only for the middle class). So it’s more like “my opponent wants to keep taxes lower for millionaires!” To which the Republican responds, “I want to keep taxes lower for *everyone*–why should we single out one group of people in these tough economic times?” There’s some potential, but it’s not really a home run.

David August 24, 2010 at 3:11 pm

Here are some polls from gallup on social security, which isn’t the same thing you are talking about, but asks whether people would support having high income workers pay taxes on all their wages: http://www.gallup.com/poll/141611/Americans-Look-Wealthy-Help-Save-Social-Security.aspx

I think this could be used by Dems in a similar manner that you suggest with taxes in general.

They even break down who thinks its a good idea by party, with 79% of Dems and 60% of Reps saying its a good idea to require higher income workers to pay social security taxes on all their wages.

arbitrista August 24, 2010 at 6:03 pm

But wouldn’t this irritate the people Democrats are trying to raise money from?

frankcross August 24, 2010 at 9:37 pm

Well, if raising taxes actually would hurt the economy, and if elections are mostly about the state of the economy, then raising taxes would seem to be a bad political strategy

Ben Valentino August 25, 2010 at 10:48 am

Interesting post. I’ve often wondered why we don’t see more explicit “soak the rich” tax proposals from Democrats. And the idea of raising taxes on the super rich should be even more popular if combined with a promise to reduce taxes on lower income citizens – who pay very little tax now in any case. How about raising taxes on any family making more than 500K, but anyone making less than 40K pays no federal income tax at all?

Some possible – but mostly not very convincing – hypotheses for why Dems haven’t forwarded this kind of proposal:

1) It might hurt campaign donations from the super rich.
2) Most Americans think they’ll be among the super rich anytime now, so even middle income people don’t favor this kind of tax policy.
3) Americans think this kind of tax policy is unfair or “un-American” even if they don’t expect to be rich any time soon.

Any other explanations?

Ebenezer Hanna August 26, 2010 at 12:50 am

Taxing the rich should seem like a no-brainer for most voters. However as others have suggested, maybe many voters would like to be rich someday. I would too, but too me rich means > $100K. Maybe the Democrats need to be more clear about defining what “rich” is. Instead of calling them super rich, I suggest calling them uber rich.

chris murphy August 26, 2010 at 8:05 pm

It would NOT be a bad idea,in either economic or political terms,for the Democrats to double down on taxing the rich. Unfortunately, both the President and Congressional Democrats represent the top 1% of the population, just like the Republicans.

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