POSTED: 01:05 a.m. HST, May 20, 2012
With growing public discontent over income inequality, a proposed federal surtax on millionaires could be one of the issues that help define political candidates in the 2012 elections.
The millionaire's tax would apply to a small fraction of the nation's wealthiest taxpayers — about 700 in Hawaii. President Barack Obama and many Democrats in Congress have described the surtax as a matter of fairness, because income for the wealthy has grown at substantially higher rates than the middle class, and have used the proposal to mark Republican opponents as defenders of the rich.
In the U.S. Senate campaign in Hawaii, U.S. Rep. Mazie Hirono and former congressman Ed Case, the Democratic candidates, favor a millionaire's tax and ending the tax cuts for the wealthy that were approved under President George W. Bush. Former Gov. Linda Lingle, the campaign's leading Republican, opposes a millionaire's tax and says the debates over both the surtax and the Bush-era tax cuts are about political gamesmanship.
Senate Democrats had proposed a 5.6 percent surtax on millionaires to bring in about $450 billion over a decade to finance Obama's job-creation initiatives. A lower 1.9 percent surtax on millionaires has been floated by Democrats to help finance an extension of a Social Security payroll tax break for workers set to expire at the end of the year.
The U.S. Department of the Treasury, using 2007 tax data, estimates that 0.2 percent of taxpayers — about 392,000 nationally and 700 in Hawaii — have adjusted gross incomes above $1 million.
Income inequality has helped fuel the Occupy Wall Street movement on the political left, but polls show there is also dissatisfaction across a broader segment of the public still drained from the recession. A Congressional Budget Office study in October found that the top 1 percent had household income growth of 275 percent over the past three decades, while the 60 percent in the middle class saw household income grow by less than 40 percent.
Hirono asked her supporters in September to sign an open letter urging U.S. House Speaker John Boehner, R-Ohio, to schedule a stand-alone vote on a millionaire's tax. More recently, the congresswoman has advocated the surtax to pay for an extention of the payroll tax break.
"I would like to see the money go to the middle-class people in our country," she said by telephone from Washington, D.C.
Hirono said she would also end the Bush-era tax cuts as part of a larger effort to ensure that millionaires pay their fair share.
"When you talk about inequality, I think that when you have tax policies that favor the richest people in our country over the vast 98 percent of other taxpayers, that's inequality," she said. "And we also know that the income disparity in our country has been growing. And you can't have a strong country and a strong economy without a strong middle class."
Case said he heard public frustration during two dozen talk-story sessions held recently across the islands. He said he does not believe the disappointment is confined to the middle class.
"So I don't buy this class warfare stuff at all," he said. "I think it's a broad concern. I don't think it's limited to an income level. I don't think it's limited to a party, geographic level, nothing.
"I think that over the last 10 years-plus we have seen an erosion of national policy to favor too few at the expense of too many. And so there has been — I wouldn't call it an income inequality, although that's part of it — I would call it a broader sense of inequality, a broader sense of unfairly shared benefits and burdens.
"I think that's what's going on."
The former congressman said he supports a millionaire's tax to cover a short-term extension of the payroll tax break. For the long term, he would end the Bush-era tax cuts in a larger deficit-reduction package that would include budget-neutral tax and spending policies, a cap on discretionary spending, and eliminating waste, fraud and abuse in federal programs. He also endorses a balanced budget amendment to the Constitution.
Conservatives have been successful at pressuring Republicans in Congress — and a few Democrats — not to agree to any tax increases. Americans for Tax Reform, a Washington-based interest group founded by conservative activist Grover Norquist, has persuaded 238 members of the House — a majority — and 41 members of the Senate to sign a pledge promising not to raise taxes. The group offers the pledge to all new candidates.
Hirono and Case will not sign the pledge.
Lingle will not sign, either. As governor, Lingle opposed most new tax increases. She did support higher state taxes on tobacco products to curb smoking and allowed a bill that gave Oahu the right to impose a rail surcharge to become law without her signature.
In written statements, she said "simplistic sound-bite proposals" would not solve the nation's deficit crisis. "Neither the ‘millionaire's tax' nor the extension of the ‘Bush-era tax cuts' will solve the deep fiscal hole our state and nation face today. What's worse, these narrow solutions have become a battle cry for political gamesmanship. Our country needs real, comprehensive, bipartisan solutions to meet this crisis," she said.
Lingle said she would simplify the federal tax code, eliminate special-interest tax loopholes, broaden the tax base and lower the tax burden for all taxpayers. While a millionaire's tax would cover only about 700 taxpayers in Hawaii, she said some would be small-business owners who report business income as personal income for tax purposes.
"Increasing taxes on small-business owners, who are the main job creators, runs counter to what our economy needs today," she said. "We need consumers and businesses in Hawaii and around the country to be able to save and invest more of their own money, which is what the payroll tax holiday extension now being debated in Congress seeks to do."
John Carroll, an attorney and former state lawmaker running against Lingle in the GOP primary, opposes a millionaire's tax and ending the Bush-era tax cuts. According to a spokesman, Carroll would sign the Americans for Tax Reform pledge against new taxes.
David Chang, chairman of the state GOP, said a millionaire's tax, even if it applies to relatively few Hawaii taxpayers, could hit small-business owners struggling to make payroll and meet expenses. The Hawaii-born Obama has said the millionaire's tax is about the nation's welfare, not class warfare on the wealthy, but Chang said he believes Democrats are using the surtax as a wedge issue to divide voters.
"We have to step back, look at the big picture, and see that it's not as simple as it looks," he said.