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Redistribution: Why the Middle Needs to Help the Bottom

David Callahan

President Obama opened up a fissure within his own party when he called yesterday for repealing the Bush tax cuts for households making over $250,000. Other Democrats, including Nancy Pelosi, have argued for a repeal that would only affect households making over $1 million.

This is a distressing debate, because the truth is that all the Bush tax cuts -- including those for the middle class -- need to be eventually repealed if the Democratic Party is going to honor its commitment to social equality in coming decades. The reason is simple: Without substantially more revenue, the kind that can only come from across-the-board tax hikes, the entitlement programs that aid low-income Americans will face relentless budgetary pressures and inevitable downsizing as spending on the aged grows. 

As Robert Greenstein, president of the Center for Budget and Policy Priorities said at a roundtable discussion organized by The American Prospect:

If we're not able to think more broadly about revenue -- not just about people at the very top -- then the numbers aren't going to work, and you're likely to have serious damage: deeper cuts in low-income programs than other parts of the budget. That really is a challenge for progressives to get beyond the obvious politics and populist appear and be able to talk about revenues in a significantly broader way.

Greenstein pointed out that federal taxes will need to be between 23 and 25 percent of GDP in order to pay for all the spending priorities that most Democrats generally embrace. Yet, as I have written here before, it's impossible to raise that kind of revenue simply by hiking taxes on the rich. While wealthy households benefit disproportionately from the Bush tax cuts, the bulk of lost revenues from those tax cuts -- about three quarters --  is due to the broad-based cuts for households making under $250,000.

There is today a massive, unspoken disconnect between the tax policies that Democrats and progressives generally tout and the revenes needed to pay for the policies they want.

So far, few progressives are calling for a full repeal of the Bush tax cuts -- even though progressives were against those cuts in the first place. Obama at least has an excuse for why he won't call for raising taxes on the middle class: He's a politician, and he ran (short-sightedly in my view) on the pledge that he would not raise taxes on any household making under $250,000. The broader progressive community has no such excuse.

At a deeper level, what is needed is a more honest conversation about redistribution. Few on the left -- elected or unelected -- want to acknowledge Greenstein's point that taxes have to be raised on the middle to protect programs that serve the poor. And, to be sure, this is not a very appetizing truth, given the immense economic challenges faced by the middle class itself -- which is hardly in a great spot right now to pay higher taxes. The specter of redistribution from the middle to the bottom also plays into the right's long-time attack on anti-poverty programs, which is that such programs take money from the deserving middle class and give it to the undeserving poor.

But numbers are numbers, and there is only so much revenue we can raise from the top. Also, for all its problems, the middle class -- especially the upper middle class households making, say, $150,000 that would keep their Bush tax cuts under Obama's proposal -- are infinitely better off than the people at the very bottom of the income ladder. It's fair that they tighten their belts a bit to avoid sharp cutbacks in programs for low-income Americans.

Granted, of course, this argument is unlikely to be the best way to sell a full repeal of the Bush tax cuts. Better to talk of using new revenue to invest in the foundations of long-term prosperity, such as education and infrastructure, so we'll all get richer.

Still, progressives themselves should understand what the stakes are here. The top needs to make sacrifices, for sure. But ultimately the middle needs to help the bottom, too.