Taxes and the Fairness Offensive

For the 2012 election season, Democrats are going back to the drawing board and coming up with bold, fresh new ideas. One of the big, revolutionary game plans is obviously going to be, “Hey… let’s raise taxes!

What’s that you say? You think this is the same thing they always try? Don’t be fooled. There’s a whole new approach being rolled out. We’re not going to simply jack up everyone’s taxes to take in more money and then blow it all on inefficient, costly programs. We’re going to have a whole new type of tax policy. You see, we’re just trying to be fair.

Democratic leaders are embracing a new strategy for tax reform that leans on President Obama’s State of the Union call for tax fairness and economic equality.

The new strategy diverges from the 1986 formula, the last time Washington successfully tackled tax reform, and focuses on raising tax revenue from the wealthiest taxpayers and businesses that funnel jobs offshore.

“Tax reform after the president’s speech now has a different definition,” Sen. Charles Schumer (D-N.Y.) said Wednesday.

“We intend to pursue a different kind of tax reform that borrows from the president’s proposals,” Schumer, a leader in crafting Democratic messaging, told reporters.

See? We’re not trying to take anything away from anybody, or punish the rich or conduct class warfare. We just want everything to be fair. Who could argue with that? Well, as it turns out, I might be able to, but the premise relies heavily on how we choose to define the word “fair” and what sort of taxes we’re talking about here. (And to be clear, I’m still sorting through some of this because it’s hardly a simple, cut and dried issue.)

As Chuck Schumer implies, Democrats will be drawing heavily on Mitt Romney’s tax returns this year to demonstrate how inherently unfair the system is. Why should a guy knocking down more than $20M a year pay less than 15% in taxes when “the guy who picks up his trash” is paying more than 20? On the surface that sounds like a pretty good question, and Democrats are counting on the general public to look no deeper than the surface. (This is not a frivolous strategy. Nobody ever went broke underestimating the curiosity, intellect and investigatory powers of the voters in America.)

The carried interest question is a big one. People like Romney make most, if not all, of their money through capital gains and interest based returns. A more nuanced look at things will tell you that this is money which the taxpayer has already earned and paid taxes on once prior to investing it. So it is, in effect, double taxation. Is that “fair” in the minds of most people? But if you didn’t tax carried interest at all, then a lot of people in Romney’s position would essentially pay zero taxes. And while that may seem more “fair” deep the bowels of the Bureau of Statistics and Analysis, it’s not going to play very well in 30 second political ads this fall. But if we tax that income at 30%, as Schumer proposes, you are now DOUBLE taxing those that invest in the capitalist machinery. Clearly this is going to take some work in educating the public and finding a salable path.

And what of letting the current Bush tax cuts expire? This one is perhaps even more prickly. Nobody in either party wants to be looked upon as being the ones to simply jack up everyone’s taxes, but this is one of those situations where doing nothing isn’t an option. If no action is taken, the taxes go up. And the Democrats are crafting a plan that’s more “fair” even as we speak. We’ll just let the tax cuts on “the rich” expire and keep the rest. Unfortunately for fiscal conservatives, this is also an idea that polls through the roof. Because.. you know… it’s more fair don’t you see?

This is no laughing matter. The Democrats are getting ready to roll out a double bladed campaign of mediscare on one side and “tax fairness” on the other. And without a substantial, yet easily relayed message in response, it’s going to be a powerful weapon in the general elections.

UPDATE: (Jazz) Lady Logician has some additional thoughts on this subject.