Obama Is Serious About Making the Rich Pay Higher Taxes

By Joshua Holland, AlterNet. Posted February 27, 2009.

On Thursday, President Barack Obama released his first budget proposal. A quick-and-dirty review of its provisions prompted the nonpartisan Tax Policy Center to state the obvious: "In case you hadn't noticed, the Bush years are definitely over." 

The New York Times summarized what's in store if it passes: 

President Obama will propose further tax increases on the affluent to help pay for his promise to make health care more accessible and affordable, calling for stricter limits on the benefits of itemized deductions taken by the wealthiest households, administration officials said Wednesday. 

The tax proposal, coming after recent years in which wealth has become more concentrated at the top of the income scale, introduces a politically volatile edge to the congressional debate over Mr. Obama's domestic priorities.  

The Associated Press adds that while the proposal "lacked many details," the "policies represent a clear ideological break from the Bush administration": 

President Barack Obama's budget proposal would shift much of the tax burden from middle- and low-income families to the wealthy, while increasing taxes on many businesses. 

Oil and gas companies would be hit with big tax increases, as would U.S. companies doing business overseas. Hedge fund and other private equity managers would also see significant tax increases. 

Tax cuts enacted under [George W.] Bush for families making more than $250,000 would be allowed to expire in 2011, increasing the top income tax rate from 35 percent to 39.6 percent. The top capital gains tax rate would be increased from 15 percent to 20 percent. 

This is what's known as fulfilling a campaign promise; as Bush said after being returned to the Oval Office in 2004, "elections matter." 

During the campaign, Republicans, desperate for a talking point that might derail the Obama machine, decided to call the Democratic nominee a "redistributionist" (at least by those who couldn't bring themselves to call the moderate nominee a "socialist").   

Of course, everyone who governs redistributes wealth; it's known as a "defining function" of states -- right up there with protecting their sovereign territories and maintaining a legal system. Every time a government collects taxes from those who can afford to pay and uses the funds to build a road that's available to the general public, every time the government hires a cop or a firefighter that serves the public without charge, it's redistributing wealth. 

Beyond those things, which everyone supports, are a host of policies that impact different people's economic outcomes. This is where the rubber meets the road: Is the government redistributing wealth down to the majority, or is it redistributing the wealth upward?

We know what the Bush administration did: It continued a long trend of policies that resulted in upward redistribution, also known as "reverse socialism." When Reagan was elected in 1980, the top 1 percent of the economic pile grabbed just less than 9 percent of the nation's income; when George W. Bush arrived, that figure was a hair less than 17 percent, and by 2006 (the latest year in the data series), it had ballooned to over 20 percent. 

The New York Times noted in January: 

The income of the 400 wealthiest Americans swelled in 2006, soaring nearly 23 percent from the previous year, to an average of $263 million, according to data released Thursday by the Internal Revenue Service. Since 1996, this group has nearly doubled its share of all income earned in the United States. 

The top 400 paid just more than $18 billion in federal income taxes in 2006, or an average of $45 million, on a record $105 billion in total income — the lowest effective tax rate in the 15 years since the agency began releasing such data. 

If Obama's plan passes Congress, that trend will come to an end. An analysis by the Tax Policy Center concludes: 

If you are blue-collar wage earner, a low-income family with children or a college student, you should love President Obama's tax plan. On the other hand, if you are making more than $250,000, you may not be so happy: By 2011, you'd be paying a lot more tax than you've gotten used to over the past few years. 

... The 2001 tax cuts raised after-tax income for those earners in the top 1 percent by more than 7 percent and for those in the top one-tenth of 1 percent by 8.4 percent. Under this plan, those days would end. For those who benefited so much from the Bush tax cuts, 2011 would look more like 2000 than 2008.  

The pre-2001 tax rates for top-bracket earners would be restored, along with the circa-1990 phase-outs of the personal exemption and the standard deduction. On top of that, Obama has proposed capping the value of all itemized deductions at 28 percent. And he'd raise the capital gains rate on couples earning $250,000 or more to 20 percent from 15 percent. 

Of course, corporate America and the wealthiest individuals have a lot of political influence, and, the Wall Street Journal notes, they're gearing up for a fight: 

Mr. Obama's ambitious agenda -- ranging from expanding health care coverage to cutting farm subsidies to cutting wasteful defense projects -- touches almost every part of the U.S. economy. It threatens to disrupt the business models of a broad swath of America's biggest companies. 

Opinion polls indicate that Mr. Obama's broad goals enjoy popular support. But crucial details of the president's agenda will be decided in coming months by close-in legislative fighting, where big industries and the members of Congress that support them have plenty of clout. At the same time, threatened interests are gearing up to shape the coming debates with multimillion-dollar public-relations and lobbying campaigns.

To be sure, Obama's proposals are far from perfect, with increases in military spending on top of an already incredibly bloated "defense" budget. But he promised to end the reverse Robin Hood policies of the Bush administration, and the president's first budget certainly reflects that goal.

See more stories tagged with: obama, taxes, budget

Joshua Holland is an editor and senior writer at AlterNet.

Liked this story? Get top stories in your inbox each week from AlterNet! Sign up now »