Muddled Class Warfare

President Obama will propose a millionaires' tax as part of the deficit-reduction package to be unveiled Monday. This is a great idea, which has already been branded "class warfare" by the Republicans.

The problem is the rest of the expected speech, which entirely mixes Obama's message to voters. Obama is widely expected to propose cutting $300 billion from Medicare over a decade, including a widely-leaked increase in the Medicare eligibility age from 65 to 67.

That really is a kind of class warfare, directed against the vast majority of older Americans who cannot afford to buy decent health insurance in the private marketplace.

UPDATE: Early this morning, there were reports that the proposed increase in the Medicare eligibility age from 65 to 67 has been scrapped. If true, this is a victory for progressives who have been pressing the White House not to commit political suicide -- Campaign for America's Future deserves a special salute for its leadership on this issue. It's also another gain for the White House beginning to recognize that scapegoating social insurance in a recession makes neither political nor economic sense.

By contrast, the proposed tax on people who make over a million dollars a year is sensible, and smokes out Republicans as defenders of wrongheaded economics and the very rich.

Rep. Paul Ryan told Fox News that the proposed tax "adds further instability to our system, more uncertainty, and it punishes job creation." This, of course, is total malarkey.

Tax rates on the rich were higher during the Clinton years, when the economy was booming, and higher still during the long post World War II boom, when the economy grew at nearly 4 percent per year for better than two decades and the great blue collar middle class was built.

If people have money in their pockets, businesses invest, investors make a bundle and willingly pay taxes on it. If the economy is flat, tax cuts won't fix it. Most of the people hit by the proposed surtax are those who have continued to make out like bandits despite the distress in the rest of the economy.

Obama was quite effective on that point in his jobs speech of September 8. He said in part:

Right now, Warren Buffett pays a lower tax rate than his secretary -- an outrage he has asked us to fix. We need a tax code where everyone gets a fair shake, and everybody pays their fair share.

Obama will call his surtax "the Buffett Rule" in honor of the billionaire who wants higher taxes and who once said of class warfare that there was indeed a class war in America and his class, the very rich, were winning.

But in the rest of the September 19 speech, Obama is expected to emphasize deficit reduction, a cause near and dear to the financial elite.

If ever there were a time when a touch of class was good politics, it is now. But deficit reduction as a cure for a prolonged jobs recession not only mixes the message. It does nothing to put unemployed people back to work and it deprives government of the resources it needs to help the needy and get the economy back on track.

Cutting Medicare is even worse politics. If you wanted to address the projected shortfall in Medicare in a fashion that was sensitive to class, you might propose giving Medicare the authority to negotiate bulk discounts with drug companies. You might point out that it was Republicans under President George W. Bush who explicitly stripped government of that authority.

Obama's proposed cuts that are part of a bipartisan deficit reduction package will take money away from a whole range of early childhood and income-support programs that help the working poor. In a deep jobs recession, that's class warfare, big time, and it's the wrong kind.

As for the proposed tax increase, one might applaud more if it were part of a bigger-ticket jobs program. Regular people support the principle of taxation based on the ability to pay -- but not because most Americans like soaking the rich as an end itself. The idea has far more resonance if it is part of a believable strategy to end the jobs recession and restore broad prosperity.

Since Republicans are going to block this proposed tax in any case, Obama's advisers can wink at the Wall Street millionaires who are financing his campaign and signal that there is no cause to worry.

While Obama is willing to include a whiff of class when it comes to proposing new sources of revenue to reduce the deficit, he is still in thrall to financial elites who want to bet the farm on deficit reduction as a cure for the larger economic recession. That is dubious economics and worse politics.

If you are going to practice the politics of class, is some consistency too much to ask? The proposed Buffett tax takes a token swipe at the very rich, while much of the rest of the program cuts outlays that help the working and middle class -- and blurs distinctions with Republicans.

As long as Republicans are going to condemn Obama as a class warrior, he might as well earn the label.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril.

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