Skip to main content

Millionaires' tax bracket would be a smart compromise

By Reihan Salam, CNN Contributor
updated 11:22 AM EST, Wed December 5, 2012
Reihan Salam says Nancy Pelosi's support for a millionaire's bracket could help lead to a deal.
Reihan Salam says Nancy Pelosi's support for a millionaire's bracket could help lead to a deal.
STORY HIGHLIGHTS
  • Earlier this year Sen. Schumer, Rep. Pelosi proposed raising taxes on millionaires
  • Reihan Salam says their idea of a higher threshold than Obama's $250,000 could work
  • Salam: It wouldn't raise as much money, but would be more politically palatable
  • He says another plus is that it wouldn't risk as much of an economic slowdown

Editor's note: Reihan Salam, a CNN contributor, is a columnist for Reuters; a writer for the National Review's "The Agenda" blog; a policy adviser for e21, a nonpartisan economic research group; and co-author of "Grand New Party: How Conservatives Can Win the Working Class and Save the American Dream."

(CNN) -- Earlier this year, Sen. Chuck Schumer, D-New York, and House Minority Leader Nancy Pelosi, D-California, expressed support for raising taxes only on households earning $1 million or more, a higher threshold than the $250,000 dividing line backed by President Obama.

Eventually, Schumer and Pelosi declared their support for the president's position. But the $1 million proposal might serve as the basis for a bipartisan agreement.

A number of Republicans, led by Sen. Bob Corker, R-Tennessee, have called for raising tax revenue by capping deductions at $50,000, a proposal that would leave virtually all middle-income households untouched while substantially raising average tax rates on households in the top 2% of the income distribution.

Reihan Salam
Reihan Salam

A deduction cap is expected to raise roughly $800 billion in revenue above current policy, which is only half of the $1.6 trillion the Obama administration hopes to raise from high-earners. It is, however, an amount that many congressional Republicans appear to have deemed acceptable.

Politics: The road to fiscal cliff paved with good intentions

One of the central problems with a deduction cap, however, is that it is likely to be opposed by politically influential charitable organizations, which recognize that it will greatly undermine the incentive for high earners to make large charitable donations. Moreover, President Obama has insisted that tax rates on high earners will have to increase, though he has not made an explicit commitment to the Clinton-era statutory top rate of 39.6% (which compares to today's top rate of 35%).

So, is there a way out of this impasse? Rep. Mike Simpson, R-Idaho, along with Reps. Tom Cole, R-Oklahoma, Bob Dold, R-Illinois, and Mary Bono Mack, R-California, have called on congressional Republicans to back legislation that would extend all the Bush-era tax cuts except for the high-income rate reductions, which would be allowed to expire. This remains a minority view among congressional Republicans, but it may well gain support in light of the popularity of allowing the high-income rate reductions to expire.

Become a fan of CNNOpinion
Stay up to date on the latest opinion, analysis and conversations through social media. Join us at Facebook/CNNOpinion and follow us @CNNOpinion on Twitter. We welcome your ideas and comments.



Republicans offer 'Fiscal Cliff' plan
GOP deal rejected by White House
Becerra: Elections have consequences
Countdown to crisis
Next step for fiscal cliff negotiations

Another possibility is that congressional Republicans will embrace the Schumer-Pelosi proposal. That is, rather than embrace expiration for the high-income rate reductions for households earning $250,000 or more, they would accept it for households earning $1 million or more.

This would shield a large, politically influential constituency of affluent households, a disproportionately large share of whom live in high-cost metropolitan areas in blue states, while allowing Democrats and Republicans to take a politically popular stand.

Opinion: A tax we could learn to love

To raise somewhat more revenue, this threshold could be set at $500,000 or $410,000, the latter of which would more precisely target the top 1% of households by annual income. Rather than set the tax rate for this new top bracket at 39.6%, Congress could set a rate of 36% or 37%, a face-saving gesture that would contribute to an appearance of moderation.

Back in 2007, Alan Viard, a tax economist at the right-of-center American Enterprise Institute, offered a detailed explanation of why increasing taxes on high-income households alone is unlikely to raise enough revenue to reach ambitious deficit reduction goals. At the time, he estimated that raising $1 trillion in additional revenue relative to the Bush-era tax code from households earning $1 million or more ($500,000 for singles) would require raising the tax rate from 35% to 57%.

If the goal of a millionaire's tax bracket is not to raise revenue in the most efficient manner but rather to make a political point, as seems at least somewhat plausible, it is easy to imagine it as the basis of a political compromise.

The Obama administration is eager to secure more fiscal stimulus for the coming year in light of sluggish global economic growth. So a tax compromise that raises relatively little revenue is arguably desirable, at least in the short term, as it would help forestall an economic contraction.

Homes, cars, jobs: Americans already making big decisions over fiscal cliff

If some small number of Republican senators from swing states are willing to cross the aisle to back a millionaire's tax bracket, President Obama will be able to claim he has a bipartisan consensus in favor of his broad approach to resolving the fiscal cliff. This in turn will make it very difficult for House Republicans to resist.

Follow @CNNOpinion on Twitter

Join us at Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Reihan Salam.

ADVERTISEMENT
Part of complete coverage on
updated 12:56 PM EDT, Sat July 26, 2014
Megan McCracken and Jennifer Moreno say it's unacceptable for states to experiment with new execution procedures without full disclosure
updated 1:28 PM EDT, Sat July 26, 2014
Jeff Yang says it's great to see the comics make an effort at diversifying the halls of justice
updated 11:55 AM EDT, Sat July 26, 2014
Rick Francona says the reported artillery firing from Russian territory is a sign Vladimir Putin has escalated the Ukraine battle
updated 4:08 PM EDT, Fri July 25, 2014
Paul Callan says the fact that appeals delay the death penalty doesn't make it an unconstitutional punishment, as one judge ruled
updated 6:25 PM EDT, Thu July 24, 2014
Pilot Robert Mark says it's been tough for the airline industry after the plane crashes in Ukraine and Taiwan.
updated 11:10 AM EDT, Fri July 25, 2014
Jennifer DeVoe laments efforts to end subsidies that allow working Americans to finally afford health insurance.
updated 11:33 AM EDT, Sat July 26, 2014
Ruti Teitel says assigning a costly and humiliating "collective guilt" to Germany after WWI would end up teaching the global community hard lessons about who to blame for war crimes
updated 8:45 AM EDT, Fri July 25, 2014
John Sutter responds to criticism of his column on the ethics of eating dog.
updated 9:02 AM EDT, Fri July 25, 2014
Frida Ghitis says it's tempting to ignore North Korea's antics as bluster but the cruel regime is dangerous.
updated 2:50 PM EDT, Fri July 25, 2014
To the question "Is Putin evil?" Alexander Motyl says he is evil enough for condemnation by people of good will.
updated 2:03 PM EDT, Thu July 24, 2014
Laurie Garrett: Poor governance, ignorance, hysteria worsen the Ebola epidemic in Sierra Leone, Guinea, Liberia.
updated 9:49 AM EDT, Thu July 24, 2014
Patrick Cronin and Kelley Sayler say the world is seeing nonstate groups such as Ukraine's rebels wielding more power to do harm than ever before
updated 6:05 PM EDT, Wed July 23, 2014
Ukraine ambassador Olexander Motsyk places blame for the MH17 tragedy squarely at the door of Russia
updated 7:42 AM EDT, Thu July 24, 2014
Mark Kramer says Russia and its proxies have a history of shooting down civilian aircraft, often with few repercussions
updated 2:53 PM EDT, Thu July 24, 2014
Les Abend says, with rockets flying over Tel Aviv and missiles shooting down MH17 over Ukraine, a commercial pilot's pre-flight checklist just got much more complicated
updated 9:17 AM EDT, Thu July 24, 2014
Mark Kramer says Russia and its proxies have a history of shooting down civilian aircraft, often with few repercussions
updated 12:37 PM EDT, Thu July 24, 2014
Gerard Jacobs says grieving families and nations need the comfort of traditional rituals to honor the remains of loved ones, particularly in a mass disaster
updated 10:13 AM EDT, Thu July 24, 2014
The idea is difficult to stomach, but John Sutter writes that eating dog is morally equivalent to eating pig, another intelligent animal. If Americans oppose it, they should question their own eating habits as well.
updated 12:30 PM EDT, Wed July 23, 2014
Bill van Esveld says under the laws of war, civilians who do not join in the fight are always to be protected. An International Criminal Court could rule on whether Israeli airstrikes and Hamas rocketing are war crimes.
updated 10:08 AM EDT, Wed July 23, 2014
Gordon Brown says the kidnapped Nigerian girls have been in captivity for 100 days, but the world has not forgotten them.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT