Monday, September 13, 2010

Politics: Messaging and Class Warfare

TORONTO, ONTARIO - I have to admit that the "class warfare" accusation that Republicans make against Democrats has never made a whole lot of sense to me. While I can understand the "anti-business" argument Republicans make about taxation even when I disagree with it (and I don't always disagree), the idea that Democrats are trying to foment "warfare" between economic classes by implementing progressive taxation which puts a higher taxation rate on incomes over a certain level strikes me as very bizarre. As someone who has been in a wide variety of marginal tax rate "brackets" in recent years, it just seems intuitive to me that higher-income people can afford to pay a greater amount of their last dollar than lower-income people. I didn't feel like anyone had declared war on me when I paid a marginal rate of 33% on my last dollar of income.

Much of the problem seems to be that people don't understand progressive income taxes. When the tax rate on the first $1 of income is changed, that affects all taxpayers (with income, anyway, but that deserves a separate discussion), not just low-income taxpayers. On that first $1, everyone, regardless of total income, pays the same amount--currently ten cents in the United States. For single people, that rate goes up to an income level of $8,375. Everyone pays $837.50 on that income, even millionaires. It's only income above $8,375 that is taxed at progressive higher rates. For single people earning more than $373,651, the rate on their additional income is 35%. However, they don't pay 35% of the first $373,651 (which would be $130,778), they pay $108,420.24 by my calculation using 2010 rates, a 29% overall rate. If taxes on the income in the lowest bracket go down by $100, EVERYONE with at least that much income has their taxes go down by $100, the "rich" included.

So, when Republicans talk about "maintaining the tax cuts for people with incomes under $250,000," what they really mean is "maintaining the tax cuts for income under $250,000" (and it is not a coincidence that most Democrats will use the latter wording). Technically, those using the first wording are wrong. Maintaining the tax cuts for income under $250,000 means maintaining tax cuts for everybody--including those with incomes higher than that amount.

I don't understand why Democrats don't try to use this language more often. President Obama, for example, wants to maintain the tax cuts implemented in the Bush administration for the low income tax brackets, but not on the higher income tax brackets. That means he's in favor of keeping taxes lower for EVERYBODY. What he is in favor of is restoring previous tax rates on higher brackets--those indeed would affect only the "rich", though not just the "millionaires and billionaires" he cited in a recent speech. The rhetoric of neither side is especially reflective of the reality of the proposals on the table, but it's especially strange in the case of Democrats, who under the accusation of "class warfare" don't defend their proposals by pointing out that they do mean lower taxes for EVERYONE. Where is that campaign rhetoric about "one America"? (Oh, that's right, nobody is actually interested in that.)

Considering the fact that people in the United States don't seem to want to understand the basics of a tax system they've had in more-or-less the same conceptual form since 1939, I'm not very optimistic that an energy tax will be understood, especially if it turns out to be cap-and-trade--and that means that there is little hope of it ever being accepted, even if it is somehow passed.

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