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One Million Should Not Become the New $250K!

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Whenever I do anything my 12-year-old daughter finds embarrassing -- which is pretty much whenever I do anything -- she says, "Really, Dad? Seriously???"

That was pretty much my reaction to House minority leader Nancy Pelosi's (D-CA) letter to Speaker Boehner yesterday, wherein she mixed a very good idea with a very bad one. Details here.

The good: Congress should vote now to extend the Bush tax cuts on the middle class but not those on upper income households. There is no political constituency against this extension -- it is not contested ground. In the interest of fiscal rectitude, there should come a time when we collect more revenue from non-wealthy families, but that should wait until their pretax incomes start doing better than they have over the past decade.

On the other hand, it is time to let the high-end Bush tax cuts sunset -- i.e., for households with incomes above $250K. There's a trillion in revenue up there, including interest savings on the debt. The growth impacts of such a tax hike are minimal, as I stress here, and I seriously worry (seriously, Dad?) about these cuts becoming permanent if they're once again extended.

The bad: But that's not what leader Pelosi suggested to Boehner. She moved the $250K threshold up to $1 million. That is, she wrote: "Democrats believe that tax cuts for those earning over a million dollars a year should expire..."

That is a very big, very bad deal. It's also a weird bargaining strategy, but I'll leave that to the game theorists. Fiscally, it loses something like 40% of the revenue according to the (indispensable) Citizens for Tax Justice -- CTJ also points out that about half the benefits of this higher threshold accrue to -- wait for it -- millionaires, who would, under this plan, pay the lower Bush rates on the earnings from $250K-1mil.

But it also redefines middle class in this debate as going up to $1 million. There is less than one-half of one-percent of American households with incomes above that threshold. True, there's only a few percent -- 2-3%-above $250K, so that was already arbitrary and not so representative of the middle class, I suppose. But again, really... seriously???

The White House, to their credit, came out swinging hard against the idea (link to come). And Politico has the following, suggesting this is some kind of tactical move.

A Democratic source explained Pelosi's move: if Republicans didn't agree to her proposal, it would make it "clear they are standing with millionaires and endangering the economic security of the middle class."

Too clever by half, in my humble opinion. This is a bad genie to let out of the bottle.

For the record, Leader Pelosi has been a wonderful force in the Congress and a stalwart fighter for progressive change. But really, Nancy? Seriously???

This post originally appeared at Jared Bernstein's On The Economy blog.