Judging by this week’s headlines, Democrats would like to raise taxes on the rich — but can’t even seem to agree on a definition of the term. What precipitated this apparent crisis was President Obama’s call on Monday to extend the Bush tax cuts for another year, but only for households earning less than $250,000 annually. That seemingly put the White House at odds with the Democratic leadership in Congress, which has advocated increases only for those making more than $1 million a year. The White House, too, had recently been inclined to define “rich” as starting at the million-dollar level: the Buffett Rule, which Obama proposed in April, would impose a minimum 30-percent federal tax rate on millionaires.
But despite some of the news coverage and the gleeful Republican needling about Democratic disarray, there really isn’t much disagreement among Democrats about who’s rich and should pay more taxes. Instead, the disparity reflects different political strategies about how best to put pressure on Republicans. The inevitable resolution — Obama will prevail — reflects the president’s primacy and also his dire predicament. Having once before broken his vow to let the Bush tax cuts expire (as part of a 2010 stimulus deal), he probably can’t do so again and feel confident about getting reelected.
The disparity within the party arose in large part because Obama failed spectacularly the last time he tried to frame an election as a referendum on whether to raise taxes on those making more than $250,000. That was in 2010, when the Bush cuts were first set to expire. Some Democrats, led by New York Senator Charles Schumer, were already pushing to define “rich” as $1 million. While it’s true that a salary of $250,000 doesn’t feel rich in some parts of New York, Schumer’s primary motivation was tactical: Setting the threshold at $1 million is better politics because for everyone except maybe the Koch brothers and the Kardashians, “millionaire” connotes “rich.” And forcing Republicans to explain why they’d block a tax cut for all Americans in order to get a bigger break for millionaires is something any Democrat would love to do.
After the 2010 elections, most Democrats warmed to Schumer’s way of thinking. But they didn’t abandon the belief that people making more than $250,000 should pay a bit more (in part because there’s a huge deficit, and upping the benchmark to $1 million would mean foregoing $68 billion in annual tax revenue). During the subsequent lame duck session of Congress, the Senate held separate votes on the $250,000 and $1 million thresholds. Each drew 53 votes, and 48 Democrats voted “yes” on both. So it’s misleading to portray the issue as a dispute; for most Democrats, the answer isn’t one or the other — it’s either one.
For Obama, though, caving on the $250,000 figure a second time would risk demoralizing his liberal supporters just when he needs them most.
He’ll still have a clear contrast with Mitt Romney, who favors extending, and expanding, all the Bush tax cuts. And if Obama does eke out a win, he’ll have a stronger case to raise more revenue.
But the real winner in that scenario (or any scenario, really) wouldn’t be Obama or Schumer or any Democrat. It would be George W. Bush.
Bush’s tax cuts were supposed to last 10 years. We’re now on year 12. If Obama were to prevail and the Bush cuts expire for those earning more than $250,000, they would still continue for the 98 percent of Americans who earn less. And even the millionaires and billionaires would get a break on their first quarter-million.
There would probably be plenty of huffing and puffing from conservatives about socialism, job-killing tax hikes, and the death of free enterprise. But what they don’t recognize — and Obama won’t dare say — is that the whole fight would represent a huge capitulation to Bush’s economic values. Most of his signature tax cuts would live on, probably permanently — and they’d be all but impossible to revoke since they’d have the endorsement of a Democratic president.
Joshua Green is a national correspondent for Bloomberg Businessweek. Follow him on Twitter