The negotiations over raising the U.S. debt limit have centered around tax policy—and in this realm, both Republicans and Democrats have proven themselves to be failed negotiators, not because they do not know how to bargain, but because neither side knows what it should bargain for. In my last column, I criticized the Republicans for their "no new taxes" pledge. In this column, I shall direct my fire toward President Barack Obama and the Democrats for their equally rigid stance on taxation questions. As is well known, the president has also drawn his line in the sand; he has insisted that the new revenues needed to close the deficit must be obtained from either raising taxes on affluent individuals or raising corporate taxes. The vulnerable and needy are to be kept free from their share of the tax burden.
Democratic leaders think this is a matter of basic tax fairness. Nancy Pelosi has said that Democratic lawmakers "will not make working families and the middle class sacrifice without also calling on everyone to contribute their fair share." Indeed, it seems that the president and the Democrats are determined to insure that the now 50 percent or so of Americans who do not pay income tax are able to maintain this privileged status, even as some of them (along with some richer Americans) will be forced to bear—largely in the future of course—some reduction in the benefits that they receive, especially from the big three programs: Social Security, Medicare, and Medicaid.
The implicit assumption behind this Democratic rhetoric is that the current distribution of benefits and burdens sets an appropriate "baseline" against which to test the justice of any future tax reform. Given the current recession, the president and key Democrats have concluded that the right course of action is to steepen the level of progressivity in the income tax. When combined with other taxes, this stratagem could easily bring marginal tax rates for wealthy Americans—especially those making over one million dollars—over the 50 percent mark, and perhaps as high as 70 percent, according to Michael Boskin.
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