The Hill reported last week that “leading Democrats . . . are having a difficult time agreeing on what it means to be wealthy.” Speaker Pelosi thinks it means making over $500,000 a year. Senator Schumer says the threshold is $400,000. Candidates Obama and Clinton call for tax increases on those making more than $250,000, while John Edwards favors higher taxes on those receiving more than $200,000. Edwards also reflected, however, the Democrats’ general reluctance to discuss the topic: “I don’t know if I know what a rich person is,” the multimillionaire said at a recent debate.
Why is this topic a hot potato? Because for all the triumphalism of the liberal blogosphere, whose typists anticipate a Democratic president giving the 2009 State of the Union address to a Congress with Democratic majorities in both houses, political professionals know that it will be hard to sell tickets to “Great Society: The Sequel.” One of those typists, Mark Schmitt of “Tapped,” laments that the Democrats don’t just come out and say that “we all have to share in the sacrifice” for the sake of their various humane and noble goals.
The political professionals, however, are betting that the electorate is much less enthusiastic about the Democratic agenda than the bloggers. Specifically, they worry that people favor a new war on poverty, assault on global warming, dance classes for street gang members, etc., etc., only insofar as somebody else will pay for it. The Congressional Budget Office’s most recent estimate was that in 2004 a household needed an income of $266,800 to land in the top 1% of the income distribution. Thus, Pelosi and Schumer are talking about higher taxes for only a fraction of that top 1%, while even the populist Edwards would limit his tax increases to the wealthiest 3% of the country.
The households in the top 1% of the income distribution received 16.3% of all pre-tax household income in 2004, and paid 25.3% of all federal taxes. (By comparison, the “lower” 80% of American households received less than $64,300 in 2004. Those four quintiles received 46.5% of all pre-tax household income and paid 32.9% of all federal taxes.) If political constraints are forcing Democrats to contemplate tax increases only for the very prosperous, economic constraints will leave them with very modest social welfare budgets. No Democrat is advocating a revival of the 70% income tax bracket that Pres. Reagan abolished, or of the 90% bracket that existed before JFK’s tax bill was enacted. If Democrats are going to focus their tax plans on the pinnacle of the income distribution, however, marginal increases will yield negligible results.