Sen. Orrin Hatch is correct: Washington is engaged in class warfare and a battle over redistribution of income. The Utah Republican just has the details backward.
Hatch, chairman of the Senate Finance Committee, leveled the “class warfare” charge in describing President Barack Obama’s proposed tax hikes on wealthy Americans, which the White House says would generate $320 billion over 10 years to pay for middle-class tax cuts and other benefits. In the past, charges of “class warfare” have helped to thwart quasi-populist initiatives.
It’s highly unlikely that a Republican Congress will enact much, or perhaps any, of the economic initiatives Obama announced in his State of the Union address Tuesday night. But this debate with Republicans will extend through the 2016 election, and Obama clearly holds the upper hand: Many Americans sense that the middle class is being left behind while the rich get richer.
It’s a long-term trend. Former Treasury Secretary Lawrence Summers this week noted that if the U.S. had the same income distribution today that it had in 1979, the bottom 80 percent of income earners would have $1 trillion — $11,000 per family — more. The top 1 percent, meanwhile, would have $1 trillion — $750,000 per family — less.
Many Americans understand, and resent, the redistribution from the middle class to upper-income earners. Polls show strong support for higher taxes on the wealthy.
Obama’s proposals deserve scrutiny, but Republican attacks have a hollow ring. As Obama noted, increasing the top rate on capital gains and some dividends from 23.8 percent to 28 percent would take it to the same level applied when President Reagan left office. (What Obama didn’t say is that under Reagan middle-class tax cuts were financed by higher corporate taxes.)
A stronger economy today enables Obama to make a better case for what he describes as “middle-class economics.” With his proposals, Obama also set the political table for Hillary Clinton, the likely Democratic presidential nominee in 2016.
The rise of inequality, and Obama’s new focus on it, poses difficult challenges for Republicans. But Republicans are talking about addressing poverty in America. House Ways and Means Committee chairman Paul Ryan could be a central figure in any legislative effort to address it. In any case, Republicans certainly won’t cede “middle class economics” to Obama and the Democrats. But that will make it harder for them to keep trotting out the familiar “class warfare” charge.
Albert R. Hunt is a Bloomberg columnist.
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