Senate Democrats plan to introduce taxes on the extremely wealthy to combat Republicans' insistence that taxes must be off the table in a deficit-reduction deal. According to The Hill, they want to either cut the Bush tax cuts for people earning over $1 million a year or alternatively add a 3 to 5.4 percent surtax on millionaires and billionaires.
This is a smart political move by Democrats. General increases to the tax rate aren't popular, but a poll last month found 72 percent of voters approve of a hike in taxes on the wealthy to reduce the deficit. Either of the Democratic proposals would put Republicans in a bind.
But in the long term, only leveling new taxes on the wealthy is a bad policy. Obama pledged to leave tax rates as they were for the middle class during his campaign in 2008. When it came to debate the Bush tax rate extension last year, Obama proposed a rate increase only on couples making more than $250,000 a year. That would bring in an additional $700 billion in revenue over the next decade, but unless we revert to Clinton-era tax rates for everyone, the debt will still jump by $4 trillion during that same period.
The truth both parties refuse to recognize is that if we're really trying to draw down the debt, doing so will eventually require the government to raise taxes on those in the middle class, too. The super rich should be required to contribute more than the rest, but that group can't just be those making over $1 million. Setting the top bar for the middle class at $250,000 was already overly generous, and families earning less than that will have to chip in their fair share. The Dem's new millionaire tax just further distorts expectations that we can rely on the rich to solve all our fiscal troubles, and makes matters even worse by redefining who exactly is rich enough to contribute.