Stop Professing Your Love for the Middle Class and Actually Do Something

26 Jan 2015 2:15 PM | Deleted user
Another State of the Union Address and the middle class is miraculously back in the news. The President wants to lower taxes on the middle class and raise taxes on the wealthy. This, he claims, will redress some of the ill effects of wage stagnation over the years coupled with rising income inequality. The Republicans, of course, all but said that his proposals were dead on arrival. Of course, the President had to know that before he even made these proposals. So why bother? Well to use the middle class as a wedge against the Republicans. To which the Republicans respond that it is his policies and those of the Democratic Party that have hurt the middle class.

And on and on it goes with the same claims, counter claims, name calling, and stale proposals that have been offered for the last 75 years. The casual observer watching this game of tit-for-tat would rightly conclude that neither side really cares about the middle class, because if they did the two parties would seriously be talking about real tax reform that could truly benefit the middle class because it would promote growth.

Alas, they aren’t. While the President wants to play the class warfare card with higher taxes on the rich, the Republicans want to simply cut capital gains taxes even further. What the middle class needs is a tax code that is simpler to promote growth along with rising wages. The main problem with a proposal that calls for higher taxes on the wealthy is that they will always find ways to evade paying higher taxes, and the basis for doing so lies in the very tax code that nobody is reforming because moneyed interests have a vested interest in keeping things the way they are. Higher taxes on the wealthy often result in the burden ultimately falling on the middle class because of all the deductions and loopholes that will enable them to avoid paying them.

Perhaps the President could have started off with something like; “I received the message of the midterm election loud and clear, and I am prepared to work with my Republican colleagues in Congress for serious tax reform that will benefit both the middle class and the economy. Therefore, I propose several flat tax rates like 5 percent, 10 percent, 15 percent, up to a maximum of 20 percent with absolutely no deductions.”

Republicans have for years been calling for flat rates with no deduction on the grounds that it would foster greater growth. People might have more to spend. The tax code would be about raising revenue; not about affecting both individual and corporate behavior. In other words, the tax code that we currently have has been the main engine for social engineering. And yet, when Republicans propose this, Democrats in Congress refuse to even consider it because it would effectively dis-empower many of the special interests that have supported congressional incumbency.

Consider for a moment that prior to the new Congress being sworn in earlier this month, the Democratic Chair of the Senate Finance Committee refused to even consider this type of reform because it would actually be more harmful to his constituents on Wall Street who aren’t phased with higher marginal tax rates because they have enough deductions to offset them. So all the language of the rich paying their fair share through higher rates has really been an exercise in obfuscation with the main objective being to protect the interests of the wealthiest Americans.

So what happened to the middle class? Obviously it is being used as a political football, and a deflating one at that. Many in the middle would be better off with lower rates, albeit without the deductions. Many among the affluent would most likely be about the same. Corporations and the wealthiest may end paying more because they would no longer have deductions. Unlike the typical flat tax proposal which is regressive because there is often only one rate, multiple flat rates would be progressive because they are assigning higher tax rates to higher income brackets. Perhaps the greatest windfall is that it might remove money from politics because there would be less room for interest groups to maneuver.

So why didn’t the President offer such a proposal? Because that would require working with the opposition than beating them over the head in the hopes of positioning the Democratic Party in 2016. Politics, in other words, is about playing games and creating illusions — who gets what when, and how — not actually accomplishing anything.

Unfortunately, American politics have become so polarized that good ideas cannot even be entertained because they were proposed by the other side. If the Republicans have a good idea, the Democrats reflexively have to oppose it and vice verse. After all, where would the sport be if they could actually get along in order to truly benefit the middle class they purport to love so much?

Now let’s return to what the President could have said. Instead of promising to use executive orders and his veto pen to get what he wants, he might have actually sounded more presidential had he said something like: “Let’s make a deal. I’ll support a simpler tax code through multiple flat tax rates and no deductions if you will support an increase in the minimum wage and its indexation thereafter. The economy will prosper because the tax code is simpler and more conducive to growth. A minimum wage through its ripple effects upward through the wage distribution will put more money into the hands of more people. Because of the ripple effects, the middle class will benefit, and their increased purchasing power will lead to increased demand for goods and services in the aggregate, which may lead to job creation. Our politics will be cleaner because we will remove the special interests from them. And because of the grassroots means by which the economy will grow, we will reduce income inequality.”

It is high time for our public officials who are really supposed to work for us to stop posturing and begin doing something. In case the message was lost, the middle class has been suffering for some time now, and it continues to suffer. What the voters really said in the 2014 midterm election was that they are sick and tired of partisan games and want the two co-equal branches of government to work together to seriously address the nation’s problems. Right now, one of those problems is the declining middle class.

I am available for comment: (914) 629-6351
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