REPUBLICAN LAWMAKERS immediately dismissed President Obama’s new deficit plan as a political ploy, and to some extent it was. In demanding that tax increases be a part of any deficit-reduction plan - and calling specifically for a new minimum tax rate for earnings above $1 million per year, as inspired by financier Warren Buffett - Obama surely doesn’t think Republicans will actually go along with it. Still, the country needs to have an honest debate about how to respond to deep changes in the economy - changes that allow some Americans in certain parts of the business world to amass once unimaginable quantities of wealth, while making it more difficult for tens of millions of others to earn a middle-class living.
A higher tax rate for at least the wealthiest taxpayers makes sense as a fiscal policy, especially in conjunction with cuts in entitlement programs that middle-class families rely on. Just as importantly, Obama’s proposal is also a good way to jump-start that broader debate about rising levels of inequality in the economy.
Government spends heavily to support openness, stability, and innovation in the marketplace - through basic scientific and medical research, strong intellectual-property protections, a working transportation system, and the occasional $700 billion taxpayer bailout of the financial-services industry. These conditions promote the growth of the economy as a whole, but they have proved far more beneficial to private-equity investors and high-tech businesses than to manual laborers and nurse’s assistants. Surely those whose earnings grow the fastest can reasonably be expected to kick in more. The so-called Buffett rule - that billionaires should pay at least the same tax rates as middle-income Americans - is only fair. And especially as the share of national income earned by the top 1 percent of taxpayers grows over time, there’s no reason to believe that raising their tax rates to Clinton-era levels, or slightly higher, will hurt the economy.
Inevitably, Republican opponents are leveling familiar accusations of class warfare - and doubling down on their recent efforts to rebrand all high-income Americans as “job creators.’’ The question of whether the well-compensated traders who sold synthetic collateralized debt obligations are “job creators’’ rather than “job destroyers’’ is one that’s well worth airing on the campaign trail. And in the case of business owners with millions of dollars in annual income, the relatively small extra bite on the portion of their personal income above $1 million isn’t going to discourage expansion or innovation: They know they’ll earn far more from a successfully functioning business than from trying to squeeze out a few thousands in extra personal income to compensate for a higher tax bill.
It needn’t have come to this. To the chagrin of other Democrats, President Obama previously signaled a willingness to accept deep spending cuts and cost-saving changes in Social Security and Medicare, in exchange for removing some tax loopholes and deductions that disproportionately favored the wealthy. Congressional Republicans rejected even that option under pressure from the Tea Party - a move that has now prompted Obama’s more confrontational approach and set the stage for a deeper clash in the 2012 elections.
Amid widespread economic discontent, Republicans have taken the position that government spending is the sole culprit for the deepening woes of the American middle class. Obama wisely has pursued a balanced approach, combining changes to Medicare and Social Security with revenue increases. But Republican intransigence has all but obliged Obama to confront what’s really going on: The fundamentals of the economy have changed in ways that further enrich millionaires, and the tax system should respond accordingly.