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Amid the endless (and endlessly confusing) Beltway chatter about the deal that supposedly will keep the U.S. economy from gunning it over the fiscal cliff on New Year’s Day, one thing has already become crystal clear: The Republican strategy for protecting its plutocratic donor base from the party’s inevitable surrender on taxes.

Basically, it consists in offering up the 20% as human shields to protect the 0.0001% from the rapacious revenue demands of the 47%.

Who says Republicans don’t do math?

So what’s going on here? Well, now that Comrade Norquist has been purged from their ranks, the Republican Politburo appears to have decided that if revenues must be raised, it should be done in the way suggested by their last presidential nominee (the one whose name is currently being methodically erased from the RNC’s official records).

To this end, various GOP apparatchiks are touting the idea of using deduction caps and/or clawback mechanisms (which would deprive high-income taxpayers of the benefit of the lower rates applied to the first few chunks of those incomes) as a substitute for raising the top marginal rate all the way back to the same confiscatory level (39.6%) that prevailed during the Clinton economic hell hole years.

You may recall that during the campaign a cap on itemized deductions (mortgage interest, state income tax, charitable contributions, etc.) was offered up by He-Who-No-Longer-Exists as the solution to his $5 trillion arithmetic problem — except that whereas Mitt wanted to use the money to pay for even lower marginal rates, the GOP Politburo has now adopted the Left Deviationist line that tax increases on the wealthy are OK as long as they don’t harm “incentives” for “job creators” — i.e. don’t raise the top marginal rate.

(It’s true they also keep blathering about seeking tax “reforms” and lower rates as part of the Beltway’s beloved “grand bargain,” but I don’t think even they take that seriously any more — just as the original Politburo never gave much more than lip service to Lenin's flowery rhetoric about the “withering away” of the state.)  

As it turns out, the Left Deviationist line isn’t very left at all, no matter how much the teabaggers rant about it. But it does demonstrate that in the new political conditions revealed by the election, the GOP establishment is perfectly willing to wage class warfare against its own electoral base (the mass affluent) on behalf of its most important donor base (the ultra ultra high net worth).

As the saying goes: Elections have consequences.

The trick for the GOP, of course, is to deny it is proposing any such thing. Thus we have one of Karl Rove’s former minor minions explaining why the GOP’s counteroffer is every bit as tough on the plutocratic elites as President Obama’s plan to restore the Clinton-era top rate on incomes over $250,000:

According to the liberal Tax Policy Center, capping all itemized deductions at $50,000 a year would yield $749 billion in extra revenue over 10 years — almost as much as the $823 billion that President Obama’s plan to raise tax rates on top earners would yield in the same period. Moreover, such a cap would soak the rich first. The top one-fifth of income earners would pay more than 96 percent of the higher taxes.
Note the sleight of hand here: “Top earners” is first transformed into “the rich,” and then swapped out for “the top one-fifth.” This is precisely the same con game that Mitt and his economic guru Marty Feldstein (former chairman of Ronald Reagan’s Council of Economic Advisors) tried to pull during the campaign.

After the Tax Policy Center pointed out that Mitt’s plan to cut taxes for the wealthy while also reducing the deficit inevitably would require a substantial tax hike for the middle class (his $5 trillion math problem), Comrade Feldstein took to the pages of the capitalist Pravda to explain why this was not so:

The IRS data show that taxpayers with adjusted gross incomes over $100,000 (the top 21% of all taxpayers) made itemized deductions totaling $636 billion in 2009 . . . And what do we get when we apply a 30% marginal tax rate to the $636 billion in itemized deductions? Extra revenue of $191 billion — more than enough to offset the revenue losses from the individual income tax cuts proposed by Gov. Romney. (emphasis added)
And so with a stroke of Marty’s pen, millions of American taxpayers with incomes over $100,000 were lifted from the coach seats and given an upgrade to first class — on paper, a least.

(As one of those millions — if only barely — I can tell you I thought it was pretty fucking cool to be instantly whisked into the same socioeconomic elite as Bill Gates and Warren Buffett. But for some reason they still won’t return my calls.)

Thiessen at least profited from Feldstein’s mistake, and has learned not to mention actual dollar incomes, which might actually mean something to his readers. Instead, he mimics the statistical smart guys, with their high falutin talk about “quintiles”.  

But one of the real statistical smart guys — Nate Silver no less — once again has leapfrogged over a semi-comatose pundit class to get to the heart the matter. In today’s 538 column, he describes, with perhaps a bit too much math, the perverse consequences of the GOP’s plan.

In essence, Nate notes, a deduction cap and/or rate clawback would create a “bubble” in the tax code: That is to say, the relatively rich would pay a higher top marginal rate than the insanely rich (i.e. the Mitt Romneys of the world).

Once a taxpayer hit a certain income level (Nate uses $250,000 a year — although, again, to raise enough revenue to fully replace a 39.6% top rate would require a lower income threshold), the loss of tax benefits, such as itemized deductions, would be the equivalent of adding a new, higher tax bracket to the existing system.

So far so good (that is, unless you’re the one caught in the bubble.) Share the wealth! Every man a king!

Here’s the rub, though: Once the deprived tax benefits have been fully taken away — i.e., once our billionaire taxpayer has lost all his/her itemized deductions or has reached the point where all of his/her income is being taxed at the top rate (the current 35%, not the Clinton-era 39.6%), then it’s smooth sailing from that point on: Their effective top marginal rate reverts to 35% and stays there forever and ever, no matter how much more income they earn.

This, of course, is on top of the fact that the really fat fat cats — i.e. the wealthiest 0.0001% I was talking about earlier — take most of their income in the form of dividends and capital gains, which are already taxed at a much lower top rate than ordinary work-a-day income.  And I definitely haven’t heard the GOP Politburo say anything about heaving those tax breaks over the side. Andrew Mellon and J.D. Rockefeller would probably climb down from the pantheon of Republican deities and smite them dead if they tried.

It doesn’t take too many math skills to recognize that when you count your income in the hundreds of millions (or billions), the tax hit from losing your itemized deductions doesn’t even rate up there with nicking yourself shaving in terms of the personal pain involved. But for an upper middle class taxpayer — or even an upper upper middle class taxpayer — with, say, a big mortgage, sky-high property taxes, a steep state and/or local income tax, and really large out-of-pocket medical bills, it will hurt.

If that sounds suspiciously like special pleading on my part, I won’t deny I fit the description. But I’m also not expecting any sympathy from anyone if the GOP does somehow manage to talk President Obama (less likely) and the Senate Democrats (much more likely) into being henchmen in its con job. I’ve managed to do quite nicely through the Great Recession so far, and paying a few more grand a year in taxes isn’t going to kill me.

But, if at least part of the policy objective for progressives is to offset the truly titanic transfer of wealth and income from the working and middle classes to the wealthy that has taken place over the past 30 years — and which has left income inequality at about the same level as when Herbert Hoover took office — then soaking the likes of me isn’t going to do the trick. Not nearly.

This report, released by the Congressional Budget Office last year (it’s a wonder the GOP didn’t send in suicide bombers before it could be published) contains the brutal facts. Between 1979 and 2007, income grew by:

275 percent for the top 1 percent of households,
65 percent for the next 19 percent,
Just under 40 percent for the next 60 percent, and
18 percent for the bottom 20 percent.

It’s true that over that same period, the top fifth (Thiessen’s quintile) saw their share of national income rise by 10 percentage points. However, nine of those percentage points went to the top 1%, while the rest of the top quintile (i.e. the 81st through 99th percentiles) saw their share of national income increase a whopping one percentage point.

The CBO study doesn’t break the distribution of income down any further, but other studies based on IRS data have estimated that 60% of what the 1% got actually went to the upper 0.1% — about 300,000 households.

I’m fairly confident that if you cut that 0.1% into even thinner slices, the same proportions would apply, with the top 0.01% taking the lion’s share of the top 0.1%'s income gains, and the top 0.001% grabbing most of the pie from the top 0.01%. It’s about as elegant an example of the power law as you’ll find anywhere, and it’s leading us back to a social class structure that hasn’t been seen since the Gilded Age — if not the salad days of the Roman Empire.

In one of his books from the early ‘90s (can’t remember which one) Republican apostate Kevin Phillips complained that the Clinton top marginal rate was both too low and kicked in too soon. Or, as he put it, it taxed a reasonably successful orthodontist at the same rate as Bill Gates. What the Republicans have in mind is even worse: It would tax the orthodontist at a higher rate than Bill Gates.

You really can’ t help but be impressed by the GOP’s absolute iron determination to defend the highest reaches of the plutocracy against any and all comers, including themselves (e.g. Warren Buffett and his millionaire tax proposal). But you do have to wonder whether those who inhabit the lower reaches — or like to pretend that they do — are going to meekly agree to be their cannon fodder.

Originally posted to billmon on Mon Nov 26, 2012 at 12:57 PM PST.

Also republished by Daily Kos and DK Lending.

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