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The Real Reason Democrats Want to Raise Taxes on the Rich

The Daily Ticker
Daily Ticker

Editor's note: This post originally appeared on Business Insider

A common argument you hear from conservatives is that raising taxes on the rich is a joke of a deficit reduction proposal, because it hardly makes a dent in the deficit.

According to CNBC, reverting to Clinton-era levels would just get you about $40 billion to $45 billion in the first year.

GOP Congressman Tom Price has gotten a lot of attention for saying it would only fund the government for eight days... so what's the point?

So what is the point?

Well, it's not really about deficit reduction at all.

Related: Higher Taxes Will Create Jobs and Cut the Deficit: David Cay Johnston

Zachary Goldfarb at The Washington Post has a great piece on how Democrats once vehemently opposed the Bush tax cuts, but are now trying to permanently preserve all of them for the vast majority of taxpayers. One big reason is that the economy has changed, and there's a recognition among virtually everyone that the economy is too weak to let taxes rise above the board.

What’s more, income inequality has been growing. Sparing the middle class higher taxes while requiring the wealthy to pay more would tip the scales slightly in the other direction.

“The reason there’s been this movement toward broad consensus on renewing the tax cut for working- and middle-class families is that will give us a sharper progressivity in the tax system that is very much desired by Democrats and progressives who’ve seen an income distribution more and more distorted toward the wealthy,” said Betsey Stevenson, former chief economist in Obama’s Labor Department and a professor at the University of Michigan.

The point about making the tax code more progressive doesn't get talked enough. But this issue should be brought up in every discussion about changing marginal tax rates.

Related: Corporate Taxes: Notably Absent from the Fiscal Cliff Discussions

The truth of the matter is that it's not going to be that easy to close the deficit using the tax code, or even via lower spending. Deficits are closed via more growth, and that's about it.

A great predictor of deficits, going back decades, is the unemployment rate. The tax code has much less to do with it than people think.

But the tax code can help create more progressive outcomes, and at a time when inequality continues to rise, addressing that inequality is a major liberal goal.

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