Obama’s Vow to Tax Rich Alarms Some Business-Friendly Democrats

Photographer: Andrew Harrer/Bloomberg

President Barack Obama on the Buffett rule to set a minimum tax on people who earn at least $1 million annually. Close

President Barack Obama on the Buffett rule to set a minimum tax on people who earn at... Read More

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Photographer: Andrew Harrer/Bloomberg

President Barack Obama on the Buffett rule to set a minimum tax on people who earn at least $1 million annually.

Four years ago, the country was falling to pieces and Democrats were, electorally speaking, thrilled about it. For many, winning was as easy as not being associated with a deeply unpopular president, George W. Bush, and his party.

Today, the economy has only marginally improved, and now it’s the Democrats who will be held culpable. If voters base their decision on the proverbial question -- “Am I better off than I was four years ago?” -- President Barack Obama might not win another term.

The central question for his campaign, and his party, is what should they talk about instead? In recent weeks, they seem to have settled on an answer: Taxing the rich, Bloomberg Businessweek reports in its April 30 issue.

Though Senate Republicans blocked Democrats’ efforts to pass the Buffett Rule, which would have required the highest earners to pay a minimum tax rate of 30 percent, Democratic leaders haven’t let the subject drop. The president continues to argue for tax increases on the wealthy at every turn.

Most Democrats are on board, yet the issue has inflamed old divisions between liberal and moderate Democrats. They disagree on why raising taxes is important --- is it about fairness or about reducing deficits? --- and over how the president should make his case for them with the public.

“Without a doubt, the old debate is re-emerging,” says Jonathan Cowan, president of the Democratic research group Third Way. “It’s like locusts; it always comes back.”

Matter of Justice

Liberals view a highly progressive tax rate as a matter of social justice necessary for the government to fulfill its commitment to programs like Medicare, Social Security and education.

Tax policy will define whether the country is run on behalf of the 99 percent or the 1 percent,” says Damon Silvers, policy director for the AFL-CIO, the largest U.S. labor federation. “As long as we have the essentially corrupt tax system we have today, where people with power and influence get away with paying so much less as a percentage of their incomes than the rest of us do, there’s not enough money in the system to do what we need to as a country to be competitive.”

The AFL-CIO advocates repealing the high-end Bush-era tax cuts, eliminating lower rates for capital gains, and imposing a financial-transactions tax.

Traumatizing Tax Talk

That kind of language alarms business-friendly Democrats, many of whom remain traumatized by Democratic losses going back a generation that they attribute to cavalier talk about tax increases.

“Never start off a political conversation with the T-word,” warns Democratic Representative Jim Cooper of Tennessee. “Walter Mondale tried that against Ronald Reagan, and it didn’t work. America is an aspirational society. Every labor union member is a would-be yacht owner.”

An April 9 Third Way poll found that independent voters, on whom the election will likely turn, are most receptive to higher taxes when paired with a desirable policy outcome like deficit reduction.

“If the rationale is fairness,” Cowan says, “it’s much less compelling than if the rationale is fiscal responsibility and growth. On the traditional left, ‘fairness’ has become shorthand for raising taxes to solve the fiscal crisis without cutting spending.”

Choose a Side

One reason for the tension is that Obama will have to choose a side, and his decision will frame the public debate and could inform what happens after the election.

Lately, he has emphasized fairness, hammering home the theme in the run-up to Tax Day, when income-tax returns are due to the federal government. Polls show he’s on the winning side of the issue: A recent CNN/ORC International poll showed 67 percent of independents agreeing that the tax system “benefits the rich and is unfair to the ordinary working man or woman.”

That doesn’t necessarily make it a winning electoral strategy. Voters could agree that the current system is unbalanced yet fail to be persuaded that Obama’s prescription for fixing it would produce jobs or do enough to lift the economy.

Recent polls suggest that this might be the greatest threat to Obama’s chances of winning a second term: Though voters generally endorse his critique of the tax system, they say Mitt Romney, the presumptive Republican presidential nominee, is the better choice to manage the economy.

To contact the reporter on this story: Joshua Green in Washington at jgreen120@bloomberg.net

To contact the editor responsible for this story: Wes Kosova in Washington at wkosova@bloomberg.net

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