By James Kwak
In an otherwise unobjectionable article about The Piketty, the generally excellent David Leonhardt wrote this sentence: “In the 1950s, the top rate exceeded 90 percent. Today, it is 39.6 percent, and only because President Obama finally won a yearslong battle with Republicans in early 2013 to increase it from 35 percent.”
Is “yearslong” really a word?
But that’s not what I mean to quibble with. It’s that “yearslong battle with Republicans.”
Let’s review the facts. The 39.6 percent tax rate dates from the first Clinton budget act in 1993. It was lowered to 35 percent by the 2001 Bush tax cut, which had a sunset provision at the end of 2010 because Bush couldn’t get 60 votes to pass it, so he had to use reconciliation, which under the Byrd Rule couldn’t be used to increase the deficit more than 10 years in the future. The 35 percent rate was then extended for two years by the December 2010 tax cut, which was supported by President Obama and passed with overwhelming bipartisan support. It finally expired on January 1, 2013, at which point the 39.6 percent rate reappeared in its original form. A few hours later, Congress passed a new tax cut for just about everyone, except households with income over $450,000, who were left with the 39.6 percent rate.
In other words, President Obama didn’t fight a battle with Republicans. He fought a battle with himself. In 2010 and 2012 he could have restored the top tax rate to 39.6 percent simply by doing nothing and letting the Bush tax cuts expire. The January 2013 tax bill also locked in big tax preferences for capital gains and dividends, though not quite as big as envisioned by President Bush.
President Obama talks a good game when it comes to inequality, but he hasn’t backed it up with actions. There may have been extenuating circumstances, sure. But when it comes to tax policy, his main impact has been to make permanent most of the inequality-increasing tax cuts that his predecessor’s most treasured legacy.