The oft-quoted campaign strategy that got Bill Clinton elected in 1992, when a recession-racked nation wanted help, was “It’s the economy, stupid.” The strategy for the Obama administration, as it tries to fend off a likely Republican sweep in the midterm elections, is obviously still the economy. But a more focused version might be, “It’s the middle class, stupid.”
A strong majority voted to give a bright, disciplined but neophyte senator a chance at running the nation as president in 2008 in large part because he articulated a vision that would restore Washington, D.C.’s concern for the middle class. Though much of his appeal came in comparison to the reckless and roughshod approach of the Bush administration, Barack Obama expressed a commitment to help the middle class. Drawing a line between those households that earn more than $250,000 (and individuals who earn more than $200,000) and those who earn less was not only politically savvy, but it also underscored a basic American sense of economic justice.
The Bush administration rolled back taxes in 2001 and 2003, citing the surpluses left by the Clinton administration as reason to return those funds. But the taxes disproportionately helped those in the top 2 percent of earnings, and contributed to a rising deficit. Conservatives defended the benefits skewing to the top earners by asserting that this group paid more. Fair enough. But extending the tax breaks for the wealthiest of Americans will cost $700 billion over the next 10 years.
And furthermore, the tax rates for the wealthiest Americans will be far lower than they have been in earlier decades. President John F. Kennedy dropped the top income tax rate from a staggering 91 percent to 70 percent. President Ronald Reagan was able to lower the top rate from 70 percent to 50 percent. Under the Obama administration’s plan, the top rate would be 39.8 percent.
Another argument conservatives make defending tax cuts for the rich is that the extra capital leads to job creation. There is strong evidence to the contrary. Robert Reich, labor secretary under President Clinton, writes that Republican claims that “restoring the Clinton tax rates for the rich would hurt the economy — because it would reduce the ‘incentives’ of the rich (including the richest small-business owners) to create jobs — is ludicrous.” During the Clinton years, the economy roared, Mr. Reich notes, and 22 million jobs were created. In the eight years of the Bush administration, even with two tax cuts, the economy created just 8 million jobs.
The cost of extending the Bush tax cuts to those on both sides of the $200,000 and $250,000 divides is about $3.7 trillion over 10 years, so deficit hawks should think twice before advocating for the lower rates to prevail.
The larger problem, many economists assert, is income disparity. The middle class has fallen behind, while the wealthiest have greater incomes. And the middle class has shrunk. Policies aimed at boosting the middle class and ushering more into its ranks should be a priority for the next Congress, regardless of which party controls it.