Raise taxes on the rich

Robert Reich

Bob Moon: We keep hearing about how much we can't afford and what programs we need to cut to rein in the federal deficit. But there could be two edges to the budget knife.

Commentator Robert Reich wonders why one agenda item seems to be missing from the conversation.

Robert Reich: As Americans get ready to file their taxes, politicians are battling over how much to cut government spending in order to reduce huge deficits. Curiously though, one option for deficit reduction seems to be off the table. That's to raise taxes on the very rich.

For decades now, America's top earners have been pulling in a larger and larger share of the nation's total income. Over the same period though, their tax rates have steadily declined. In the 1950s, the top marginal income tax rate was 91 percent. Now it's 35 percent. Even when you include deductions and credits, the super-rich are now paying a far lower portion of their incomes in taxes than at any time since World War II.

Meanwhile, capital gains and dividends -- a big chunk of their income -- were taxed at 35 percent as recently as the late 1980s. Now, they're taxed at 15 percent. And the estate tax has now vanished for estates under $5 million or $10 million a couple.

If the rich were taxed at the same rates they were taxed a half century ago, they'd be paying some $350 billion more this year in federal taxes. That would be trillions of dollars over the next decade -- a major contribution to eliminating the deficit.

Now yes, of course, clever accountants and tax lawyers would find ways around any tax increases, but this was always the case.

The real difference between now and then is the political power of the super-rich is much greater. After all, that's why their tax rates are so much lower.

But it's just possible that the devastating budget squeezes in Washington and in state capitals, and the slashing of public services vital to the middle class and the poor, may prompt Americans to look back 50 years -- and ask why the super-rich shouldn't pay the same tax rates now as they did then.

Moon: Robert Reich was Labor Secretary for President Clinton. His most recent book is called "Aftershock: The Next Economy and America's Future." Next week, David Frum. And in the meantime, you can always throw your two cents into the budget debate -- click on this contact link to let us know what you think.

About the author

Robert Reich is chancellor's professor of public policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.
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Those who agree with Mr. Reich can use numbers to justify their perspective; so can those who disagree. I'm not sure such a dialogue would lead anywhere. Instead, I believe the discussion needs to be framed not as an economic one, but a human one. Let's not talk numbers--let's talk people. Let us have the courage to think critically and interrogate what we believe and why we believe it. These are the painful, yet productive conversations.

Shocking to suppose, but could the relationship between great wealth, corporate donors, and one party's primary source of amazingly massive contributions have anything to do with the reason that such taxes are off the table? Just asking.

What Mr. Reich's comments (always) leave out are two key realities. First, the current US tax system is already highly progressive, with the top 1% of filing households paying 40% of all HH income taxes, with just over 22% of total income, even with the capital gains rates and other tax code items he cites. The top 5% of filers now pay in over 60% of all taxes to the federal government. How much more does he think that those 5% are going to carry for the rest of us? Second, he misses entirely the fact that there is a cause-effect relationship to tax rates and national income. So his $350billion of more tax revenue figure (if current filers paid peak year tax rates) assumes that the income would the same under his 91% tax rate from the '50s as it is under current tax law. All other economists have observed that this isn't the case, and incomes would be much smaller across the board under high-tax schemes like his. Higher taxation causes lower GDP growth.

I believe Mr. Reich' numbers. But if you to launch a counter-argument against the Reich position, you need to define your terms and cite specifics. Remember President Clinton was the last President to leave the Feds with a surplus. So what happened?

Dr. Reich trots this same disingenous claim again and again. Most of the "super rich" (his new term -- what happened to "class enemies")almost never paid those super-high rates. In fact, today's "super rich" ((aka class enemies)pay a higher percentage of the overall income tax burden than they ever have before. Why does marketplace keep letting Dr. Reich peddle this disinformation?

Economics 101: the more you tax something, the less of it you get, and the less you tax it, the more you get. In fact, when that 91% tax rate was cut in half, tax revenues *rose*. And even if we *confiscated* the entire fortunes of the "super-rich," that *still* wouldn't solve our long-term budget problems.


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