Joe Biden campaigned on a package of well-crafted reforms to restore fairness to the tax code, only to watch his handiwork eaten alive by a handful of centrist Democrats who are hypersensitive to any change that would even slightly inconvenience the rich. Perhaps the most tragicomic encapsulation of this process is contained in a line in today’s Washington Post: “To meet the demands of Sen. Kyrsten Sinema (D-Ariz.), the White House agreed to drop a proposed 3 percent tax on taxpayers earning over $5 million, instead agreeing to target the higher tax to those earning more than $10 million.”
Just how did we arrive at such an absurd point? A short history is in order.
After Ronald Reagan’s tax cuts blew up the budget deficit in the 1980s, Democrats tried running on tax increases, only to realize people didn’t want to hear this. Bill Clinton solved the problem by promising to raise taxes only on the rich, which he defined as households earning $200,000 or more.
That became the standard Democratic line for many years. Obama also campaigned on it. However, when he negotiated the expiration of the Bush tax cuts, Republicans were able to push the threshold up to $400,000 a year — nobody below that level would pay any higher taxes.
Even though the $400,000-a-year line was arrived at through contentious negotiations with Republicans, Democrats eventually embraced it as their new line. Biden campaigned on a promise that nobody earning below $400,000 a year would pay a dime in higher taxes. Since earning $400,000 a year would put you in the top one percent of the income distribution, this put Biden on presumably safe political ground, as he could promise 99 percent of the taxpayers his plan would not touch them at all.
However, centrist Democrats have balked at these proposals, and none has been more difficult to placate than Sinema. The Arizona senator blew up even the watered-down version of Biden’s plan that had managed to survive intense lobbying. It was a concession to Sinema that the White House scrapped its plans and replaced them with an income surtax on the ultrarich.
And now, Sinema reportedly told the administration that raising taxes — by a mere 3 percentage points! — on households earning more than $5 million is too onerous. Sinema would only accept a tax on the real rich people who earn $10 million a year or more, not the working schlubs pulling down a mere $8 or $9 million a year.
I am not aware of any economic principle that would recommend this change as a more efficient method of taxing the rich. I asked Kyle Pomerleau, a tax expert at the conservative American Enterprise Institute, if he knew of any incentive or economic-growth case for Sinema’s position. “If anything, the incentive/growth case goes the other way. Generally, you want a lower rate on a broader base of income,” he told me. “Instead they went with a higher rate on a narrower base.”
So not even the right sees a trickle-down incentive effect. Sinema’s stance is motivated by pure compassion. The poor folks scraping by on a high-seven-figure income have to be spared. And, to be sure, every dollar in higher taxes on the rich forfeited means one less dollar in social support for janitors and bus drivers. When Sinema talks about Democrats winning back the working class, this is apparently what she has in mind.