Why the Left Really Hates Tax Cuts for the Rich: Caroline Baum

“Odious” is how senior adviser David Axelrod described President Barack Obama’s acquiescence to extending tax cuts for the rich as part of a deal struck with congressional Republicans.

Just think about that for a moment. In order to secure the GOP’s support for an extension of unemployment benefits and a one-year reduction in the employee-paid portion of the payroll tax, the administration had to hold its nose, swallow its pride and exhibit other metaphorical manifestations to demonstrate its disgust at the thought of letting the rich keep more of their own money.

“I respect people who are unhappy,” Axelrod said in an interview with Christiane Amanpour on ABC’s “This Week” on Sunday. “We share their view on the upper-income tax cuts, on the estate tax. That was a part of the deal, odious though it may be, in order to accept, in order to get, all the good things that come along with. That’s the nature of compromise.”

Certain household chores -- cleaning the toilet, for example -- are odious. Filling out health insurance forms is another repugnant task. Spending hours on the phone with HP tech support in India ranks high on the odious list.

But being allowed to keep money you earned? What is it about tax cuts for the wealthy that so galls the Left?

I can’t answer definitely because I don’t share the antipathy. My hunch is that folks who abhor tax cuts for the rich see the economic pie as a fixed quantity. Your gain is my loss. A tax cut, exemption, credit or deduction for you means nothing for me. It’s a zero sum game, except it isn’t.

Zero Sum Game

Over the last 60 years, federal government receipts have averaged 18 percent of gross domestic product. Whether the top marginal income tax rate was 92 percent, as it was during the 1950s, or 28 percent, as it was for a short spell in the late 1980s, the government can’t manage to snag a bigger share of the pie.

Far better to find a recipe to bake a bigger pie so that government’s 18 percent translates to more dollars.

Amanpour didn’t ask Axelrod what he would say if the pie doubled but the share of income that goes to the rich, poor and middle class stayed the same.

I’m not sure what he’d say on TV, but I bet I know what he thinks: not fair. Redistributing income -- reapportioning the pie slices so the thin slivers are thicker -- is the real goal.

Genteel Theft

That’s easier said than done. Sure, the government could confiscate wealth outright, the way Russia seized Yukos Oil Co., charged former CEO Mikhail Khodorkovsky with tax evasion and fraud and threw him in jail. Doing it through the tax code is so much more genteel.

Try as it might, the U.S. government hasn’t been able to increase its 18 percent share of GDP despite wide variations in the top tax rate. The rich have tax lawyers to help them shield their income and avoid taxes.

Besides, the focus on increased income inequality, with its potential to create social unrest, ignores mobility up and down the income ladder. Almost 60 percent of taxpayers were in a different quintile in 2007 than they were in 1999, according to a June 2010 report by Robert Carroll, a senior fellow at Washington’s Tax Foundation. Forty percent of households in the top quintile moved down, while 60 percent of those in the bottom quintile moved up.

While the share of income earned by the top 1 percent more than doubled between 1980 and 2007, that kind of distributional analysis -- comparing snapshots of the population at different points in time -- fails to capture mobility among groups, Carroll says. His study tracked 62,412 tax returns that were filed in all nine years.

Mobile Population

Millionaires, as it turns out, are here today, gone tomorrow, largely the result of the variability of capital gains realizations, Carroll finds. Politicians should keep this in mind the next time they contemplate a surtax on the wealthy, the only group against which it’s politically correct to discriminate.

Maybe my fixed-pie theory is incorrect and it’s old- fashioned jealousy that keeps the Left allied against the wealthy.

Unlikely. Class warfare has never been a big seller in the U.S. for the simple reason that most Americans aspire to being rich or achieving some degree of financial security.

The door is always open. And many Americans capitalize on the opportunity and walk through it.

On the other hand, millionaires may fall through a trap door and find themselves on a lower income scale. Nothing odious about that, as far as Axelrod’s concerned.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

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