Knowing Which Side Your Bread Is Buttered On

Greg Mankiw teases out the real beneficiaries from Charlie Rangel’s tax plan.

  • The bottom three-fourths of households, those making less than $75,000 a year, are not much affected. They each would receive a tax cut of about $100 per year.

This group mainly votes for Democrats. Perhaps Rangel sees those who don’t, the culturally conservative white working class, as a lost cause. Or they can be won over via other means.

  • The next 24 percent, those making between $75,000 and $500,000, would receive much more substantial tax cuts. Those in the $200,000 to $500,000 range, who are in the 96 to 99 percentile of the income distribution, would get a tax cut of about $3,600 per year.

Here we have a key Democratic constituency, the suburbanites behind the party’s small-donor boom. These voters are tax-sensitive and they are susceptible to Republican appeals.

  • The top 1 percent, those making over $500,000, would pay substantially more in taxes. Those making more than $1 million would see their tax bill rise by an average of more than $100,000.

The Democrat-friendly ultrarich aren’t tax-sensitive, and many are in fact eager to pay higher taxes. The rest, micropolitan industrialists, “small-scale” entrepreneurs, upper-middle management, etc., are the bedrock of the Republican Party.

The logic is impeccable. And besides, it’s not obvious that it wouldn’t be an improvement, though that’s more a sad reflection on our current mess of a tax code. Personally, I like the Millman Plan.