Relax, Rich People!
The Daily Beast, March 12, 2009
No matter what the GOP says, Obama's new taxes are hardly radical. In fact, he's giving you a better deal on your mortgage than the middle class.
As the Kabuki dance known as Washington's budget process settles into another long performance, an unsurprising choreography is unfolding. The president proposes an ambitious but hardly revolutionary budget. Republicans rise as one to brand it "radical." Mild-mannered pundits (like the Times
' David Brooks and the Financial Times's
Clive Crook) froth uncharacteristically that the thing looks downright scarybefore retreating (after a White House pushback) to a more-sober skepticism. Meanwhile, as Obama aides head to Capitol Hill to testify on the details, and the president himself wooed Democratic budgeteers Wednesday, rhetorical-battle lines harden and bear no relation to the facts.
Obama's "socialism" is the silliest charge. Republicans are up in arms over the "class war" supposedly launched by the president through tax increases he's proposed on top earners in his new budget. Some top Democrats now say they're having second thoughts, too. But it's important to parse their claims.
Republican ire isn't really directed at Obama's call to let the Bush income-tax cuts for the top expire. After all, Obama campaigned on that idea, it won't take effect until 2011 (when the economy will presumably be past the worst), and we know from the boom of the 1990s that a top marginal rate of 39.6 percent puts no brake on entrepreneurship and growth.
Nor is the idea of hedge-fund and private-equity kings having their income treated as, well, income (and not as capital gains) particularly offensive to the GOP. This affects only a few people who've done extremely well, and who probably had something to do with the overleveraged mess we're in anyway.
No, their real pique is reserved for Obama's plan to limit the value of the itemized deductions top earners take for mortgage interest and charitable donations. If the president aims to "punish success" in this way, Republicans say, and use the proceeds to help fund liberal dreams like universal health care, then as a matter of principle they must fight with everything they've got. According to the New York Times
, Democratic tax chieftains Max Baucus in the Senate and Charlie Rangel in the House actually agree with the GOP here.
If Obama were in fact punishing success with his proposal, they'd have a point. But Republicans have been so unmanned by Obamaand Hill Democrats so cowed by the predictable blowback from real-estate agents and charitiesthat everyone has gotten confused. The headline "Obama Proposes to Keep Subsidizing John Thain's Mansion More Than John Thain's Cleaning Lady's Home" would more accurately describe what he's doing. A closer look should reassure the GOP and Democratic tax writers that under the Obama plan, America's top earners, far from being punished, will still retain their traditional place at the top of Uncle Sam's housing and charity dole.
Let the mortgage deduction illustrate the point. Under Obama's proposal, top earners will be able to deduct mortgage interest only at the 28 percent rate, not at the 35 percent rate (or the 39.6 percent rate, once Bush's tax cuts expire). What does that mean exactly? Today, every $1,000 in mortgage interest (or charitable gifts) generates $350 in tax savings for top earners; under the new plan, the tax savings would be only $280.
To be sure, this represents a sudden and disorienting loss for top earners, who were accustomed under the previous regime to having their taxes cut even during a time of war. But here's the comforting part: That $280 per $1,000 mortgage subsidy is still a lot more than the $150 subsidy per $1,000 that millions of middle-income homeowners in the 15 percent bracket enjoy. And it's an infinitely bigger federal housing grant than the zero awarded by Uncle Sam to the masses of Americans who rent (or who will shortly, once they've been thrown out of their homes).
Seen in this light, nothing proves Obama's lack of "radicalism" more than his quiet commitment to keep America's top earners enjoying the most generous (albeit slightly reduced) housing subsidies in the land. Ditto for charities. Given the temper of the times, and the extent to which America's unsubsidized cops, teachers, nurses, and janitors outnumber its well-to-do homeowners and donors, the "socialist" route would have been to take top earners off the dole altogether.