In the Arena


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At the heart of the progressive movement, one hundred years ago, was the notion of taxation on a sliding scale, according to income–the belief that the more wealthy you are, the more you should pay as a percentage of your income. The progressive income tax was launched, via constitutional amendment, by Woodrow Wilson in 1913. It remains one of the clearest fault lines between the left and the right. 

Starting with Ronald Reagan, who belatedly embraced the notion of “supply side” economics (aka “voodoo economics,” according to his vice president George H.W. Bush), there has been a conservative assault on the notion of progressive taxation. The intellectual underpinning of this movement, provided by Arthur Laffer, was the undoubtedly true statement that if you tax people too much, if they don’t have enough to spend, the economy falters–and also, more dubiously, that the higher the marginal tax rates, the less incentive people have to create wealth (although that is undoubtedly true at the extreme margin, as the Soviet experiment showed). But how much taxation is too much? Bill Clinton demonstrated in the 1990s that rates of near 40% for the very wealthy and 25% for capital gains was not too much. Barack Obama has now returned to that benchmark (lower for capital gains–20%), and surpassed it slightly–limiting the value of tax deductions for those with incomes of over $250,000. And, like Clinton, Obama proposes to vastly expand the support for workers at the bottom end of the income scale. 

David Leonhardt, the New York Times’ excellent economic analyst, has the details here:

Before becoming Mr. Obama’s top economic adviser, Lawrence H. Summers liked to tell a hypothetical story to distill the trend. The increase in inequality, Mr. Summers would say, meant that each family in the bottom 80 percent of the income distribution was effectively sending a $10,000 check, every year, to the top 1 percent of earners.

Mr. Obama’s budget reflects that sensibility. Budget experts were still sorting through the details on Thursday, but it appeared that various tax cuts and credits aimed at the middle class and the poor would increase the take-home pay of the median household by roughly $800.

The tax increases on the top 1 percent, meanwhile, will most likely cost them $100,000 a year.

Over the coming weeks you will hear this described as a form of radicalism. It is not. It is liberalism–and more: it is purest bright line available to divide liberals from conservatives in American politics. Let the screeching begin.