Joe the Plumber injected the topic of progressive taxation into the election when he argued (paraphrased) that “You shouldn’t pay more in taxes just because you make more.” I know people who voted for McCain entirely on the supposition that Obama’s tax plan violates this principle. This belief has led everyone from Mike Huckabee to Sean Hannity to Michelle Malkin to Glenn Beck to McCain himself to call Obama a “socialist,” even. (Yeah, I wish.)
How progressive—socialist, even?—is Obama’s tax plan?
Some argue we already have progressive taxation—that it should be either continued, or reversed as an injustice. Indeed, if you look for progressive elements in our system, you’ll find some. (If you look for white hairs on a black cat, you’ll find some of those, too.) But there isn’t progressive taxation in any overall, net sense.
First, keep in mind you can’t just consider the tax rate. The tax rate is applied to pretax income; but the richest Americans qualify for a host of very substantial loopholes on top of this rate that have no correlate in lower income groups. Nobody making more than $250,000 a year pays the set rate, unless their kid brother is doing their accounting.
Second, while federal taxes are at the heart of the current debate, they aren’t nearly the whole story. Before the Bush tax cuts of 2003, taxes as a percentage of income were nearly identical for all income groups when you consider all government taxes, including state ones. (See graph  below.) Of course, the Bush cuts were regressive, favoring the wealthy; since things were basically proportional before, this skewed the whole tax profile in a regressive direction.
Nor is Obama proposing much “progress” to reverse this situation: The Bush tax cuts reduced the federal income tax rate for the richest 2.3% of Americans from 39.6 per cent—where it had been since the Clinton years, an unprecedented boom time for this group—to 35 per cent. This cut is set, per Bush, to expire in 2010. Obama’s plan is simply to let it expire accordingly. Or possibly to rescind it a few months early. His “socialism” amounts to not pushing to renew one of his predecessor’s programs. This is what the hype is about. This is the big red scare. Even Ronald Reagan wanted to socialize health care for life-threatening conditions, and conservatives love him. Obama can’t not propose a new tax cut on the millionaires without being vilified. This is how far to the right the spectrum of political thought has shifted.
[More on progressive taxation in the next post.]