So here’s a new development in this Nancy Pelosi/Bush tax cut situation. Last night, a new coalition called “Americans for Tax Fairness” was formed, composed of nearly 30 labor unions and progressive groups. They have a Facebook page here. The Wall Street Journal has a story about them here. And their entire reason for being is to call on Congress to let the Bush tax cuts expire beyond $250,000. This is the same figure that’s in the President’s budget. But it’s not the figure Nancy Pelosi used in her letter this week to John Boehner. She defined “middle-class tax cuts” as everything under $1 million in income. The initial press release from Americans for Tax Fairness specifically criticizes that.
“We established Americans for Tax Fairness to help make the economy work for all,” said Americans for Tax Fairness Campaign Manager Frank Clemente. “To achieve this goal, we need adequate levels of investment in critical areas like education and rebuilding infrastructure that create and sustain jobs. We also need a balanced and equitable approach to the federal budget challenges we face, which includes protecting critical services for the middle class and the most vulnerable. This requires that we all pay our fair share of taxes, especially big corporations and the richest 2 percent making more than a quarter of a million dollars a year.”
There are proposals on the table to end the Bush tax cuts for those making $1 million a year. One of the coalition members, Citizens for Tax Justice (CTJ), estimates that 43 percent of the tax revenue would be lost if the threshold for extending the Bush tax breaks is set at $1 million in income rather than at $250,000 – the level President Obama has proposed. In addition, CTJ estimates that half of the breaks resulting from moving the threshold from $250,000 to $1 million would go to people with income exceeding $1 million.
Just to shed some light on how these coalitions get formed: it doesn’t happen overnight. It’s not like Pelosi sent her letter on Wednesday and you have a coalition critiquing her by Thursday afternoon. When you have large organizations like the AFL-CIO, AFSCME and SEIU, pretty much every economic think tank on the left like CTJ and the Economic Policy Institute and the Center on Budget and Policy Priorities, along with big progressive organizations like MoveOn and the National Council of La Raza, you need a lot of lead time to confirm everything out. In other words, my working thesis is that this coalition to push for the expiration of the Bush tax cuts at the same level of the President was in the works for some time. Then Pelosi inexplicably changed the dividing line, and Americans for Tax Fairness rushed out their product to counter her.
So now we have a fight on the left over tax revenues. And it’s not even a particularly good fight. $250,000 a year isn’t exactly middle-class, either, and both approaches assume that the Clinton-era tax rates were too high for 98% of all Americans. That actually may be the case on January 1, 2013, just on the level of not wanting to pursue tax-side austerity. But over time, there’s no reason to suggest that the Clinton-era tax rates were overly burdensome. There may be a better way to structure the tax code other than the Clinton-era rates, perhaps through expanding the EITC or giving refundable tax credits at the low end and keeping the rates higher on income, so that everyone pays a bit more on their early dollars while the poor still benefit from lower taxes. The Bush tax cut structure certainly doesn’t do that, and until you unwind those tax cuts, you’re not going to get a fairer tax code.
Anyway, the point is that Pelosi’s action has really damaged the ability to come to a decent resolution on the revenue side at the end of the year. The consequences of her shift is that 50% of the foregone revenues go to millionaires. And as for how this would work with the Buffett rule, the Administration that created the Buffett rule still wanted to go with $250,000 as the dividing line, and they clearly amassed a very large progressive coalition behind that principle.
What a mess.
P.S. Incidentally, I am glad that Americans for Tax Fairness also supports deriving MORE money from corporate tax reform than a revenue-neutral approach, which has been the watchword of the Obama Administration on this.