Democrats Define ‘Rich’

Is the threshold $250,000 or $1 million in income?

Andrew Stiles
Friday, October 07, 2011

In his role as head of the Democratic party’s political-messaging operation, Sen. Chuck Schumer (D., N.Y.) has been one of the prominent voices in the ongoing and often heated debate in Congress over federal deficits and debt. At every turn, he has loudly accused Republicans of risking a government shutdown, or even default, in order to protect “tax breaks for the wealthy.” However, when it comes to actual tax policy — and the precise definition of the term “wealthy” — Schumer and his Democratic colleagues, most notably President Obama, don’t exactly see eye to eye.

The president has been unequivocal in his support for letting the Bush-era tax rates expire on “the wealthy” — defined as individuals earning more than $200,000 a year and households earning more than $250,000 a year. Obama’s most recent deficit plan argues that these tax rates “were unfair and unaffordable at the time they were enacted and remain so today.” The president has also proposed eliminating or reducing itemized deductions for this income group. In fact, this was how he intended to pay for the vast majority ($400 billion) of his $450 billion jobs bill.

Schumer, meanwhile, has balked at the idea. Families earning more than $250,000 a year, he said earlier this week, are “firmly in the middle class. They are not rich. And in large parts of the country, that kind of income does not get you a big home or lots of vacations or anything else that’s associated with wealth in America.” Schumer has even echoed the standard Republican argument that raising taxes on this income group would negatively impact small businesses.

He is certainly not the only Democrat to express concern over the president’s proposed tax increases. Sen. Barbara Mikulski (D., Md.), who, like Schumer, represents a lot of high-earning constituents, said she disagreed with this aspect of Obama’s plan. As did Sens. Ben Nelson (D., Neb.), Bill Nelson (D., Fla.), and Jon Tester (D., Mont.), who are all facing tough reelection battles in 2012. Such opposition is a primary reason why Senate Majority Leader Harry Reid (D., Nev.) has gone to such great lengths to avoid what is sure to be an embarrassing vote on the president’s jobs bill in its current form.

Enter Schumer, who has led an effort to replace Obama’s proposal to eliminate deductions for households earning more than $250,000 a year with a 5.6 percent millionaire’s surtax in order to cover the cost of the president’s jobs bill. “Drawing the line at $1 million is the right thing to do,” he told reporters. And he has managed to bring even his most liberal colleagues, such as Sen. Barbara Boxer (D., Calif.), to admit that his definition of “the wealthy” is “the fairest way to go.”

Schumer first floated the idea of a $1 million cutoff late last year during the lame-duck session and the debate over extending the Bush tax rates. Senate Democrats held a series of “show votes” designed to embarrass Republicans on two measures that would have extended the Bush rates for the rich; one would have set the cap at $250,000, the other $1 million. In the end, Democrats lost the debate. Oddly, Schumer supported both the lower $250,000 cutoff, as well as the final deal that extended the Bush rates for all.

But overall, Schumer has been a loyal defender of the “wealthy,” particularly when it comes to the Wall Street executives and hedge-fund and private-equity managers that he represents. In 2007, he resisted an effort by members of his own party to single out hedge funds and other trading firms with a measure to more than double the taxes on their profits. At the time, he argued the tax increase could have a negative impact on jobs by driving companies to leave New York, or even the country. “Unintended consequences often occur when you do major tax work. And you have to be careful,” he said.

But being the shrewd politician that he is, Schumer sees the potential for partisan advantage in his latest tack, as he explained in an interview with Huffington Post:

Since Ronald Reagan, when it comes to the issue of taxes, Democrats have had to travel uphill. Because no matter how fair our tax proposals, Republicans say, “You are raising taxes, we’re not.” And they win. . . . Now we have seen the ability to finally replace that with the clear and crisp message: We are for having millionaires and billionaires pay their fair share and the Republicans are not. And the polling data is strongly on our side. We can win this fight if we can make it.

The White House, meanwhile, has no choice but to support Schumer’s plan. The millionaire surtax is at least superficially consistent with the president’s proposed “Buffett Rule,” which holds that “no household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay,” and the administration would certainly like to avoid an on-the-record display of bipartisan opposition to the president’s bill.

But on the whole, the move appears to be a curiously shortsighted gamble that could come back to haunt Democrats, and especially President Obama in the event that he wins reelection. By rallying around Schumer’s proposal to “draw the line at $1 million,” Senate Democrats have conceded significant ground to Republicans in the debate over taxing “the wealthy.” Yet at recently as Friday, White House press secretary Jay Carney reiterated that “the president’s position has not changed” in regard to the $250,000 threshold.

Truth is, Obama doesn’t really have a choice. He has repeatedly demonstrated a firm unwillingness to rein in federal spending. If reelected, he will out of necessity (and ideology) be forced to push for massive tax increases to fund the dramatic expansion of government he has administered over the previous four years. His latest deficit “plan,” for example, when stripped of its accounting tricks and budget gimmicks, is nothing more than a $1.6 trillion tax increase, the majority of which is derived from raising rates and eliminating deductions on households earning $250,000. And that is still small beans stacked up against our $15 trillion national debt.

Even if Schumer’s gambit does pay off in the short-term, it will have established a new precedent from which Democrats will inevitably have to retreat — a flip-flop that even the best political messaging will be hard-pressed to explain.