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The Democratic Strategist

Political Strategy for a Permanent Democratic Majority

Creamer: Raising Top Tax Rates a Big Win for Dems

This article by Democratic strategist Robert Creamer, author of Stand Up Straight: How Progressives Can Win, is cross-posted from HuffPo:
Politico quotes conservative columnist Charles Krauthammer as saying that the “fiscal cliff” bill passed by the Congress last night was a “complete rout for Democrats” and ‘”complete surrender” for the GOP. That may be overstating the case, but there is little question that raising tax rates for top income earners is a very big deal.
The last time Republicans joined Democrats to increase taxes on the wealthy was 1990. Yesterday, they were forced to join Democrats in increasing the top income tax rate to the Clinton-era levels of 39.6 percent — and increasing the capital gains tax rate from 15 percent to 20 percent.
The top earners’ rate was last increased in 1993. Then, Democrats controlled both houses of Congress and still won in the House with only one vote to spare. Vice President Gore was brought in to cast the deciding vote in the Senate.
For two decades, the protection of high-income people from tax rate increases has been the central driving principle of the Republican Party. It has been their Holy Grail. It is the one thing that the right-wing oligarchs who spent all that money on Republican elections last year really care about.
Unfortunately, the Republicans have leverage in our government, since they still control what comes to a vote in the House.
The fact that the president, Democrats in Congress and the Progressive Movement pushed the Republicans into a place where they felt compelled to help pass an increase in the top rate is an astounding political achievement — particularly without being forced to trade cuts in programs for the poor and middle class like Medicare and Social Security.
In the debate leading up to the vote that increased the top rate in 1993, Republicans predicted it would cause a giant recession. What followed instead was the creation of 22 million new jobs, and ultimately federal budget surpluses as far as the eye could see.
The increase in the top rate will not immediately create 22 million new jobs. Nor will it create a budget surplus. But it is an indispensible ingredient in any serious plan to assure the long-term economic and fiscal health of our country — and the long-term survival of the middle class.
The fundamental economic problem facing America is growing income inequality. This is not just a problem of fairness — it is a ball and chain on our long-term economic growth.
Over the last 20 years our per capita Gross Domestic Product has grown — so has our per capita productivity. That means that each of us can produce more goods and services with the same amount of work.
But the wealthiest two percent has syphoned off all of that economic growth, and as a result everyday Americans haven’t had the money to buy the new products and services that the economy produced. That has been a formula for economic stagnation — and the demise of the middle class.
Long-term economic growth requires that the fruits of that growth be spread fairly throughout the economy or it cannot be sustained. It’s that simple.
The increase in the top rate generates about $700 billion of new revenue (including interest savings) over the next 10 years. That will lessen pressure to cut Social Security, Medicare, Medicaid, college grants, and the vast array of other government services that go to benefit – and increase the incomes – of everyday Americans. It is a step in the process of creating a fairer – and more economically sustainable — distribution of the benefits of economic growth and the restoration of the American middle class.
These increases in revenue from the highest income earners must be viewed as just a down payment in the new revenue from the wealthy needed to close the long-term structural deficit that opened up when George Bush the GOP passed the Bush tax cuts and launched two unpaid-for wars. But it is a critical first step.
The same is true of the increase in the estate tax rate from 35 percent to 40 percent — although the president had pushed hard for the old rate of 45 percent. The only people who pay estate taxes, by definition, are the sons and daughters of multi-millionaires.
In the case of both the income threshold for the highest tax rate and the exemption for the estate tax, Democrats made concessions to Republicans. Instead of making the income tax rate apply to incomes above $200,000 for individuals and $250,000 for couples, the president agreed to $400,000 for individuals and $450,000 for couples. And instead of a $3.5 million individual exemption and $7 million per couple for the estate tax, the exemption went to $5 million for individuals and $10 million for couples.

The Democratic negotiators choose to give up these thresholds and preserve the full increase in the tax rates. The rates took priority. That decision was made partially because it brought in more revenue than a compromise that would have resulted in lower thresholds, but lower rates. But making the higher rates the priority also assured that the burden of the tax increase fell more heavily on the highest income people like Donald Trump — who are precisely the ones who need to pay more.
People who make $50 or $100 million — or in the case of some Wall Street types billions of dollars a year — don’t care about thresholds that barely affect them, they care about the rates.
In addition to increasing tax rates for the wealthy, the “Fiscal Cliff” package passed by Congress contains other provisions that are extremely important to the economy — and to many individual Americans.
Immediate extension of unemployment benefits for 2 million families. This provision will benefit 5 million families over the next year.
Extension of refundable tax credits that benefit low income working people – most notably the earned income tax credit, the child care tax credit and the college tuition tax credit. It is estimated that the elimination of these credits as the Republicans wanted would cost the families of half of all African American kids1,000 a year.
Ending the threat of an immediate tax increase of 2,200 for the average middle income family.
Eliminating the virtual certainty of a new recession if the country had fallen off the fiscal cliff for any significant period of time.
Democratic success in forcing Republicans to raise tax rates stemmed in part from Democratic success in the election – where President Obama made increases in tax rates a central issue of the campaign. But it also came from the Administration’s decision to continue that campaign into the lame duck session – to use the outside game.
Democrats worked closely through The Action.org — a hub for coordinating activity aimed at raising tax rates on the wealthy. The labor movement, and organizations like MoveOn.org and Americans United for Change mobilized in key districts and delivered tens of thousands of calls to Congress. The President stumped across the country — and, of course, public opinion was solidly on his side.
Most important, Democrats used the impending end of the Bush Tax cuts and the threat of increased taxes on all Americans as leverage. In the end it was too much for even the House GOP, that realized it would be blamed if taxes on everyday Americans went up because the Republicans were protecting the wealthy from paying their fair share.
Politically, the President — and Democrats in general — emerged from the most recent battle having further improved their political standing vis a vis the Republicans. Voters saw the stark contrast between Democrats who were trying to protect them from tax increases, and Republicans who had to be dragged kicking and screaming to abandon their willingness to allow everyone else to pay higher taxes in order to protect a tiny group of the wealthiest Americans from paying their fair share.
Now Republicans hope to turn the tables on Democrats, once again threatening to allow the nation to default on its debts if Congress and the President don’t agree to cuts in middle class programs.
But if Republicans believe that America will tolerate another hostage-taking episode like the one they tried during the 2011 “debt ceiling” battle, they are clearly spending too much time talking to each other.
The president has stated flatly that he will not negotiate over the debt ceiling. Republicans who refuse to extend the debt ceiling – who refuse to pay for spending they have already authorized — have to be treated the same way we would treat terrorists who hold hostages for ransom. No negotiations on the subject should be entertained whatsoever.
If they want to send the country into economic chaos, the responsibility needs to be put entirely in their laps.
The 2011 debt ceiling battle did massive damage to the Republican brand. A reprise could seal their fate in the 2014 midterm elections. Public opinion — and even their supporters in the business community — will have no stomach whatsoever for another “economic cliff” drama just two months from now.
Of course, by postponing the sequester for two months, this week’s deal does indeed set up yet another battle in the months ahead. To pay for the two month delay in implementing the sequester that was part of the “Fiscal Cliff” deal, the President insisted that half of the costs come from new revenue — and half of any cuts come from the Military budget. Democrats need to remain firm in insisting that that same formula is used to pay for any mid-or long-term fix for the sequester. There are many sources of new revenue from higher income Americans that remain very much available.
Over the next two years, Progressives have a big agenda that can be achieved — even with the current House of Representatives. Action on immigration reform, gun safety, energy and climate change can’t wait. In the meantime, we have to battle tooth and nail to protect critical programs like Medicare and Social Security from attack.
The lesson to be learned from the recent “fiscal cliff” battle is that we win when we stand up straight and unapologetically defend the interests of ordinary Americans — and when we mobilize ordinary Americans to demand action from their Government.
The Republicans did not capitulate on higher tax rates for the wealthy because we were good at convincing them we were right. They capitulated because they were forced to do so.
The American people want its leaders to work together to solve their problems, but mostly they want those leaders to stand up for their interests — and not the interests of the wealthy, connected few.
And we need to remember that if Democrats controlled the House of Representatives as well as the Senate and White House, the “fiscal cliff” deal would have been even more favorable to everyday Americans. Thresholds for applying the new higher tax rates would have been lower, and rates on estate taxes and capital gains would have been higher.
Some people say that the 2012 redistricting makes the odds that Democrats will take back the House “mission impossible.” They were the same pundits and “experts” who would have told you a year ago that it was impossible for Barack Obama to win reelection — and that you would see elephants fly before John Boehner brought a bill to the House floor that would raise tax rates on the top 2 percent.

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