Every once in a while I read a new round of speculation about the psychological underpinnings of rich finance types’ strong turn against Barack Obama. Many of these articles include some insight, but I think they tend to dance too quickly past the baseline hypothesis that people don’t like to pay higher taxes and thus these people don’t like Obama because he’s asking them to pay substantially higher taxes. Some of that goes back to a fairly widespread progressive misperception that the president is merely proposing to return to the income tax rates that prevailed during the Clinton administration when he is in fact proposing somewhat higher taxes than that.
Above you’ll find the Tax Policy Center’s October numbers. EGGTRA is the acronym for the Bush tax cuts. So relatively to the pre-EGGTRA rates, the Obama proposed tax code would increase the burden on the top 0.1 percent by 2.8 percentage points and on the top 1 percent by 1.9 percentage points. Those aren’t gargantuan increases, but 2.8 percent of an income that runs into the millions of dollars means tens of thousands of dollars. Yes of course you can say that these guys are rich enough that they won’t really miss the money in a practical sense. But still, if a millionaire’s BMW gets totaled by the valet or the dry cleaner shreds his best suit he’s going to be pissed off. Ultimate in life we’d all be happier if we could learn to adopt more of a zen attitude toward mishaps that don’t put ourselves or our families in objective financial distress, but realistically people would rather keep that money.
A key point, I think, is that the president’s proposals are clearly undertaken with a view to the idea that people don’t want to pay more taxes. Relative to the pre-Bush rates, Obama will cut taxes not just for the bottom twenty percent or the bottom fifty percent or the bottom eighty percent but for the entire bottom 99 percent of the income distribution. That’s a perfectly plausible response to the evolution of income inequality trends, but I don’t think it’s surprising that very high income people dislike it. Obama is proposing a substantially more redistributive tax code than Clinton and in exchange he’s getting somewhat more blowback from the folks who’d lose out.