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Tax wars

Matthew Continetti of the Weekly Standard takes a look at the current Democratic “tax strategery.” The Democrats say they want to increase taxes only on households making more than $250,000 a year. Yet, despite their control of Congress and the White House, they have done nothing to make this tax structure a reality. As a result, notes Continetti, “businesses, entrepreneurs, financial planners, tax preparers, and taxpayers have no certain idea of what they’ll be expected to pay the IRS come January.”
According to Continetti, the current Democratic strategy is to extend current middle class tax rates “permanently” while setting an expiration for upper-income rates. From the Democrats’ perspective, this approach makes plenty of sense. Raising taxes on the “rich,” which includes small businesses, is politically dangerous now, while the economy stagnates. The Dems likely would be far better off trying to soak the “rich” later on when (1) the issue is no longer coupled with tax rates for the those who make less than $250,000 and (2) the economy, one hopes, has improved.
Perhaps for this reason, Republicans in the House and Senate are standing firm against “decoupling,” Continetti reports. In addition, he says, more than a few Democrats, senators from red states in particular, may well stand with them.
If so, the Democrats will face quite a dilemma. To keep the current tax rates in place for everyone, with no expiration dates, would violate liberal principles and constitute a legislative defeat. But to refuse to extend the current rates would present a substantial risk that the Dems will be blamed for everyone’s taxes going up and for the economic consequences of raising taxes in a weak economy.
The Republicans face some risk in this scenario too. The Democrats will note that they were willing to keep current tax rates for everyone except the “rich,” but that the Republicans insisted on protecting their favorite constituency.
This argument may well have some legs with the public, especially if the economy doesn’t pick up. My sense is that incumbent legislators from both parties will feel considerable heat if Congress defaults into across-the-board tax raises.
But the biggest risk would be incurred by President Obama. He still “owns” the economy in the public’s view. It would, I think, be astonishingly stupid if, in Continettit’s words, “the same team that brought you Obamacare [were to] produce, through its inaction, the largest tax increase in history.”
JOHN adds: I think there is one more factor in the mix: the fact that the Democrats, notwithstanding their class-warfare demagoguery, have in recent years been the party of the wealthy. In 2008 Barack Obama carried voters with incomes above $250,000. I don’t know what those people were thinking, but whatever they thought they were voting for, most of them can’t possibly think they got it. High-income voters are, for obvious reasons, an important demographic, and one that the Democrats are in danger of losing. So the current posture represents a sort of equilibrium for the Dems–they want to rip prosperous people, but they are reluctant to actually raise their taxes, which would be the last straw for millions of their supporters. So they are happy to put off the moment of decision for as long as possible.

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