Josh Dowlut's  Instablog

If President Obama actually had a pair, this is what he would do:

Propose trading the additional tax cuts for those making over $250k/year with extending the personal exemption to payroll taxes.  Frame it as the top 2% millionaires tax traded for the everyone trying to keep food on the table and a roof over their head in these tough times tax.  

Unlike federal income tax that allows for a $5700 personal exemption, W-2 wage earners currently pay payroll taxes starting with their very first dollar, with no exemptions or deductions allowed towards the tax.  This is how a tax with a published rate of 7.65% brings in approximately as much revenue as a tax with a top published rate of 35%.  It is also how 4 out of 5 taxpayers pay more in payroll tax than they do in federal income tax.

The hit to revenue would be approximately equal.  Extending the Bush tax cuts for those making over $250k/year would reduce federal tax revenue by approximately $70 billion/year.  Exempting the first $5700 of wages from the payroll tax would only result in a loss of $54 billion/year in revenue.

Put Republicans on the defensive.  Make them explain how it is better to take food off the table of those struggling to get by so that those making over a quarter million can have an additional tax cut that no one else has.  Remind Americans of just how marginal taxation works and how even those making over $250k/year will still be getting a tax cut on every dollar earned below $250k, just not additional tax relief on earnings above that figure.  Put on your professorial hat and explain how the backward bending supply curve of labor suggests that such tax policy might even get more output from this group of people.  Explain to us the Ramsey growth model, the fact that growth results from savings, regardless of who is doing the saving.  President Obama is great at explaining complex things such as financial derivatives and capital leverage ratios in plain speak.  He can explain how a tax cut for someone else may be better than no tax cuts at all but certainly isn't better than a tax cut for yourself and it is that very bit of illogic that Republicans are trying to sell.

President Obama should use this as the opportunity to return to his class warfare stoking populist roots.  The alternative is continued class dominance corporatism.