When I studied taxation at the University of Chicago Law School, back when it was even more of a bastion of conservative legal scholarship than it is today, students were not allowed to take the idea of a progressive income tax structure as a given. We were required to think through and discuss all of the possible rationales for taxing higher income brackets at a higher marginal rate, starting from the perspective that none of the arguments in favor of progressivity were easy or obvious to make. But one argument that I never heard, even at the University of Chicago Law School, was the argument that people who make large incomes should actually pay a lower marginal tax rate than people of moderate incomes. Instead, even at Chicago, prevailing thought among conservatives would allow a poverty level of income to escape taxation altogether, thus introducing a modicum of progressivity to the tax system.
We accept that some payroll taxes should be regressive (right now they cap out at around $100,000) because they support a floor of Social Security payments that is of more benefit to people of moderate means. We also accept a lower tax rate for capital gains, for reasons that I admit I never understood very well. Sales taxes are also somewhat regressive, because lower and middle class people tend to spend a higher proportion of their income than people who can afford more savings and investments. But I don't know of any good arguments for making people with lower incomes pay a higher marginal income tax rate than people of higher incomes. If we allow that, we move away from the whole idea of an income tax: An income tax, by definition, taxes incomes. Therefore we should at least tax all of the income that a person makes at at least the same rate. I understand the flat tax idea, which would subject all income to a flat percentage rate--I don't agree with it, but at least I understand it--but not too many economists or politicians even want to try to make the argument for a regressive income tax.
That is the argument that President Obama is forcing the Republicans to defend right now. Will they be foolish enough to make that argument?
Republicans in Congress have now backed themselves into a corner they may not be able to escape. Having refused to consider revenue increases of any kind, and having supported some of the largest tax cuts in history, they now have no way to achieve their professed goal of serious deficit reduction without gutting Defense and Medicare and Medicaid. And many of them realize that would be political suicide. Now they are being made to look ridiculous by opposing the kind of revenue increases that overwhelming majorities of the American public support. That means they either have to admit that they are not serious about deficit reduction, or they have to go along with spending cuts or tax increases that are politically disastrous for them.
It might be good to remember that it is not so much Obama's tough stance now that has forced the Republicans into this position, but rather it is the deal the Republicans made that resolved the debt ceiling crisis, that has forced them into this position. Back when everybody around here thought that Obama was acting "weak" and was "caving" to the Republican demands, what in fact was happening was that he was forcing his opponents to agree that they could not use the debt ceiling as a lever any more before the next election, and also to agree to spending cuts or tax increases that are going to create enormous difficulties for them.
The administration's newly-admired "toughness" can be seen as a way of springing a trap that was set months ago. The president has come out with a fairly middle of the road jobs bill, and some moderate long term deficit-reduction proposals. Nothing at all radical in these ideas. But he can now afford to present them in an uncompromising way. Because now, unlike with the debt ceiling negotiations, the president wins regardless of whether the Republicans go along or not.
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