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Strengthening the middle-class

9/21/2010, 9:59 a.m.
“Man, if I had a job, I’d want tax cuts too.”...
“Man, if I had a job, I’d want tax cuts too.”

Strengthening the middle-class

A bitter battle is being waged in Washington over income tax cuts. Former President George W. Bush cut taxes in 2001 and 2003, but these cuts are due to expire at the end of the year. Then the tax rate would rise to 39.6 percent from 35 percent, resulting in an increase for taxpayers with income greater than about $375,000.

President Barack Obama proposes retaining the present tax rates only for the middle class. Individuals earning $200,000 and families with incomes of $250,000 or less would continue to be taxed at the present rate. However, the rate would rise for those with higher incomes. Only about 2-3 percent of taxpayers fall into the higher income group.

Such a small increase in income tax rates alone would probably not generate such opposition. However, the major source of revenue for the rich would also face a substantial tax increase. Capital gains rates would rise from 15 percent to 20 percent, and stock dividends, now taxed at 15 percent, would be treated the same as regular income, with a rate as high as 39.6 percent.

Consequently, the wealthy have decided to do battle on the tax issue, and the nation has witnessed the enormous political clout of only 2 percent of the population. It remains to be seen whether such a small group of conservatives will be able to prevent passage of legislation that would extend the Bush tax cuts for the middle class.

The continuing global recession has created an obstacle for conservative strategists. Economists unanimously agree that it is bad policy to raise taxes on the middle class during a recession. That would certainly reduce consumer spending and suppress the growth of the gross domestic product. Conservatives risk appearing to be un-American by impeding middle class tax cuts.

There is also substantial consensus that tax cuts for the wealthy would not trigger an increase in consumption and subsequent economic growth. The only consequence would be to increase the deficit because of insufficient tax revenue to pay government expenses.

The tax cut battle has now morphed into a fiscal assault. The logic is simple. If the government was not financing so many programs to benefit the people, then the need for tax revenues would be greatly reduced. Many safety net programs are under attack, such as housing subsidies, Medicare, Medicaid and Social Security. Also, federal aid to education is considered by some to be an unconstitutional violation of states’ rights.

So far, black leaders have not weighed in on the tax battle. While there is general support for the Obama proposal, there seems to be little awareness of the political danger involved in the ability of wealthy conservatives to persuade whites with modest incomes that they share common economic interests. It is incongruous for low income Tea Party members to oppose safety net programs that they might one day need, in deference to the interests of the very wealthy.

Conservatives have astutely not made their campaign an openly racial issue. Perhaps that is the reason for the soporific response from the black leadership. African Americans are still stuck in issues of race and civil rights. The major issues now should be how to build wealth and political power, both of which depend upon improving academic performance.

Whatever the outcome of the tax cut issue, the battle has been joined. It is unlikely that the effort to downsize government will end. The objective of conservatives is to eliminate those programs that are essential to the welfare of all but the wealthy.