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On this page last week I argued that Barack Obama’s first budget showed him to be more of a left-leaning liberal than I and many others-sceptics and admirers alike-had previously supposed. People I respect have accused me of going off the deep end about this, or of neglecting Mr Obama’s tactical finesse, or both.Mr Obama is calling for little that he did not promise in the campaign, I am reminded, so he cannot be accused of springing a surprise. I welcome many of the budget’s main elements, notably healthcare reform and the cap-and-trade system for carbon emissions, and the president made it clear all along that he wished to reverse the Bush tax cuts for the high paid. So the revelation that Mr Obama is a progressive liberal must arise from the proposal to curb high earners’ income-tax deductions. That was a surprise, but a small matter: hence the charge that I am getting carried away.Alternatively, I am told, Mr Obama is playing a shrewder game. Like any good negotiator, he has adopted a maximalist opening position. He expects to be walked back from it, ending up where he wanted to be in the first place, with a more centrist plan than the one he pitched.On the first point, the tax-deduction proposal is not so small. Instead of applying the highest marginal rates of tax to each deduction, the plan would apply a 28 per cent rate. This is equivalent to a tax increase of roughly $35bn (€28bn, £25bn) a year on households earning more than $250,000. Hardly chicken feed, it is roughly half of the amount raised by returning high earners’ marginal rates to their pre-Bush levels.Not everybody would regard two-earner households with an income of $250,000 a year as rich; and many of the taxpayers in question have seen their retirement savings, college funds and housing equity destroyed. The scandal of widening inequality that still animates the Democrats’ thinking is a story about the top fraction of one per cent of the income distribution, not the top end of the middle class. Also, it is out of date: as though the housing and stock market meltdowns had never happened, the budget raises taxes on the “rich” to where they were before the Bush administration-and then some.Granted, other things being equal, reducing the value of tax deductions-not just for the highest earners, but for every taxpayer-makes sense.It broadens the tax base and requires lower marginal tax rates for any given amount of revenue raised.But look at Mr Obama’s proposal in context.He is not broadening the base to lower marginal rates.He is raising marginal rates on the highly paid, and increasing their effective tax rate by rolling back deductions.The measure is an unexpected element of redistribution in a package that was highly redistributive to begin with....More columns at www.ft.com/clivecrook
By Clive Crook
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