Surcharge Weakens Case for Ending Bush Tax Cuts

When Senate Majority Leader Harry Reid (D-NV) announced that instead of financing President Obama’s jobs bill by letting the Bush tax cuts for the wealthy expire at the end of 2012, and eliminating tax subsidies for fossil fuel companies and owners of private airplanes, a five percent surcharge would be imposed on those earning a million dollars or more, Obama quickly announced he was “comfortable” with it — the proposed surcharge was later adjusted to 5.6 percent because Obama wanted to delay implementation until after the November 2012 election.

There must have been dissenting voices in the White House, raising an alarm about Obama’s quick embrace of the surcharge, because late this past week, spokesman Jay Carney told reporters that the surcharge wasn’t the entire answer to funding the jobs proposal. Carney used the apples and oranges analogy to signal that other revenue-raising measures might be needed.

It is speculative on my part, but it is easy to see that some in the White House were worried that the administration could come under criticism for promoting the closure of tax loopholes and ending the Bush tax cuts for the wealthy as the two best ways to finance the jobs bill and then abandon that plan with no explanation as to why. Perhaps someone in the high councils of government even made the point that by adopting the surcharge, Obama and company would make it harder to end the Bush tax cuts because the counter-argument would be that the surcharge fulfills the demand for the wealthy to pay their fair share of taxes and ending the Bush tax cuts would be an unfair additional hit on the wealthy.

Besides making it more difficult to end the Bush tax cuts, a surcharge imposes what is functionally a flat tax for all those earning a million dollars or more. Those individuals earning between $200.000 and $1,000,000 and those households earning between $250,000 and $1,000,000 would continue to be under-taxed, in my estimation, whether or not the Bush tax cuts expire.

In the new tax structure proposed in a prior blog, the lowest tax rate is 16 percent and the highest is 60 percent. It is imperative that we add a number of tax brackets to the top rate in order to more equitably tax those who garner the lion’s share of the nation’s income; also, it is important to reduce the percentage of households not paying any federal income tax in order to spread the cost of financing the national government to a larger part of the nation’s population.

As the IRS finding that 47 percent of households didn’t pay any federal income tax in the last year for which full data is available, a counter-argument being made by those who are not concerned about the percentage, is that the 47 percent do pay taxes, such as FICA, sales and property taxes. This argument is faulty because those now paying federal income tax also pay these other taxes.

In an earlier blog I called the failure of Democrats to adopt a new taxation structure a major case of political malfeasance because it would have precluded any perceived need to extend any part of the Bush tax cuts. Ideally, i also argued, it should have been robust enough to pay for a single-payer health care program and meet other pressing but currently not funded societal needs.

Raymond Sandoval, President Obama’s political director in New Mexico, argued that Obama had agreed to a two-year extension of the Bush tax cuts in order to preclude a GOP demand for a longer extension. Later, after acknowledging some negative feedback to his contention, Sandoval said that Obama would not agree to any further extensions and would be willing to let all of the tax cuts expire, not just those on the wealthy.

President Obama does not agree with Raymond Sandoval, as he wants to end the Bush tax cuts only for those earning below the $200,000 and $250,000 benchmarks. This position and his position on the surcharge are likely to result in another extension of the Bush tax cuts.

A connection was previously made between a new taxation structure and the adoption of a single-payer health care system. President Obama’s position was that the votes weren’t there for single-payer. This proposition was not tested. There are reasons to believe that a single-payer system could have been adopted.

Many people have been denied health insurance because of prior conditions or they have seen family members, friends or co-workers denied coverage. Many people have had a similar experience with a health insurance company refusing to pay for an expensive operation or other medical procedure. Most of the insured have seen their health insurance premiums rise faster than the overall rate of inflation.

The political ground has been prepared for universal coverage by support from presidents Teddy Roosevelt, Jimmy Carter and a serious attempt to implement it in some form by Bill Clinton. The other industrialized nations have universal health care systems which enjoy strong support from their citizens.

There are supportive groups, especially a physicans’ group, that would have helped build public support for single-payer. Public Citizen has made enactment of single-payer a major policy objective.

As for how single-payer would have fared in a Democratic-controlled House of Representatives after the November 2008 election, there would have been a strong base of support among the progressive members and some of the “Bluedog” Democrats may have been induced to support single-payer, especially if they had a large number of uninsured in their districts.

A majority vote would have been very possible in the U.S. Senate if the Democrats had not hamstrung themselves by making it extremely easy to filibuster a bill. Senator Tom Harkin (D- IOWA) proposed a bold and innovative plan which would have progressively reduced the number of senators needed to break a filibuster at various stages of the legislative process; however, even without adopting the Harkin plan, two changes could have been made: 1) only allow a filibuster on the final vote, not on the introduction of a bill; and 2) require an actual filibuster on the floor of the Senate. Harry Reid could have called a news conference each day to call attention to a minority blocking the people’s business.

Although some of the kinds of omissions and false steps described above rest most centrally on the Democratic leaders in Congress, President Obama must assume some responsibility for not pushing aggressively for other paths to follow.

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