Democratic Tax Policy: Myth versus Reality

On tax policy, let’s stop pretending. For all of the Democrats’ rhetoric about how they look out for average people while Republicans look out for the rich, there’s hardly a dime’s worth of difference between the parties.

It’s all there in the new budget plan from Senate Budget Committee Chairman Kent Conrad, D- N.D. With all eyes focused on the debt limit talks, Conrad’s plan has received little attention. But it speaks volumes about the difference between myth and reality when it comes to tax policy.

The notion of stark Republican-Democratic differences was always a bit of a canard.

Republicans want to extend all of President George W. Bush’s tax cuts, which disproportionately benefited those at the top as incomes were already rising only for those at the top. President Obama and most Democrats want to extend almost all of those tax cuts, ending them only for the 2-percent of households that earn more than $250,000 a year.

With Conrad’s plan, the inter-party gap narrows even more. In a plan that purports to save $4 trillion over 10 years, Conrad would extend the Bush tax cuts for everyone except singles earning more than $500,000 and couples earning more than $1 million.

So, now, instead of the parties debating whether to extend tax cuts for the top 2 percent, Conrad would make the argument over the top 1 percent. Under the chairman’s plan, you’re probably safe from higher taxes even if you live in Potomac, Md., Great Neck, N.Y., or the tony suburbs of Boston, Chicago, or San Francisco.

If that’s not enough, Conrad would extend the generous tax breaks Congress enacted for 2009 on estates of the very wealthiest Americans. The 2009 rules raised the value of estates that are exempt from federal estate taxes to $3.5 million for singles and $7 million for couples (from $675,000 for singles and $1.3 million for couples in 2001), while cutting the tax rate above those thresholds from 55 to 45 percent.

Yet, even after allocating $765 billion in tax cuts, Conrad proposes to generate $2 trillion in tax savings. How? By “closing tax loopholes, cutting tax subsidies, [and] promoting tax fairness.” As part of that category, he would reduce “tax preferences for individuals” between 9 and 17 percent.

The biggest “tax preferences for individuals” are the tax-free treatment of employer-provided health care, the home mortgage interest deduction, the deduction for state and local taxes, and a variety of savings and investment preferences.

When it comes to tax deductions, the higher your income, the more valuable are your deductions. So, those same families in Potomac, Great Neck, and elsewhere benefit greatly from those particular write-offs.

Conrad didn’t list the specific tax preferences (i.e., the ones cited above) that Congress would have to reduce in order to generate $2 trillion in tax savings. Apparently, he didn’t want to upset those well-to-do Americans in those tony neighborhoods.

That makes it even clearer that, on tax policy, Conrad and his Democratic colleagues are little different from Republicans.

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