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Back in the late 80s, when I paid only passing attention to politcs, I had lunch once with a sales manager at the company I worked for. We got to talking about the economy, and after a few minutes his face lit up. “What we need to do is get rid of the capital gains tax!” he told me excitedly. The what? I thought. I happened to know that this guy spent pretty much his entire paycheck and probably had a few thousand dollars in his 401(k) and not much else in the way of serious investments. So why was he convinced that eliminating the capital gains tax, of all things, was the key to salvation?

I was young and naive back then, of course. What I didn’t know was that although the 1986 Tax Reform Act had lowered a bunch of taxes, it had increased the capital gains rate — and rich people, who do have huge parts of their income dependent on capital gains, had immediately made reduction or elimination of the capital gains tax a right-wing hobbyhorse. Rush Limbaugh and his dittoheads talked about it endlessly, and obviously my friend had gotten sucked into the vortex. Elimination of capital gains taxes would save the country!

Why bring this up? Because apparently this is a sticking point in the debt ceiling negotiations. Conservatives have long since gotten their capital gains preference restored (the rate is currently 15%, compared to a top rate of 35% for ordinary income), but a tax reform deal that broadens the tax base threatens to increase that rate. According to Politico’s David Rogers, “there’s resistance from wealthy interests who fear the president will gain too much leverage to impose tougher standards of progressivity in the tax code — and thereby crimp their capital gains tax breaks.” Jon Chait comments:

The broader problem here is that Obama seems to be taking Republicans at their word. He wants shared sacrifice, and they say they want to avoid high rates. Tax reform is a way to accomplish both. But Republicans don’t just want to avoid high marginal tax rates. They want rich people to pay low taxes, period. It’s not clear Obama understands that.

I suspect that Obama understands this just fine. It’s not rocket science, after all. Basically, he’s calling their bluff, forcing them to publicly oppose literally every tax break the rich currently enjoy. Get them to pound the table and say nyet often enough, and eventually even the vast huddled masses will finally figure out what really motivates the GOP. Maybe.

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