By Les Leopold
Our nation is already deeply in debt. How can we possibly afford to invest in our infrastructure, renewable energy, health care, our schools — and create the millions of jobs that our unemployed desperately need?
We are told that we’re already living well beyond our means — that entitlement programs like Medicare and Social Security will bankrupt us. Forget the solar panels, the smaller classes and the new jobs — we’ve got to cut back on government programs at all levels.
Meanwhile, the super-rich are still having a ball. In his annual shareholder letter, mega-investor Warren Buffett wrote, “We’ve put a lot of money to work during the chaos of the last two years. When it’s raining gold, reach for a bucket, not a thimble.” And Forbes Magazine adds, “Many plutocrats did just that. Indeed, last year’s wealth wasteland has become a billionaire bonanza. Most of the richest people on the planet have seen their fortunes soar in the past year.”
Which brings us back to the federal budget. There are two sides to every ledger: the expenses…and the income. We need to start looking at the income side. With a fairer tax system, we could retrieve some of that money downpour that the elite has been siphoning away from us for decades.
In the 1950s the marginal tax rate on those earning more than $3 million a year (in today’s dollars) was 90 percent. By 1990 it was 28 percent. The IRS says that the top 400 richest tax filers actually paid a rate of just 16 percent in 2007 (the latest numbers we have). Yep, the richest earners — people who took in an average of $343 million each — probably paid a lower rate than you did. Something to consider as you sign your 2009 return.
By the way, those 400 people who do so well on tax day have a combined net worth of nearly $1.37 trillion. (According to Forbes Magazine their wealth has gone up on average by more than 16 percent over the past year — the worst economic year since the Great Depression during which 29 million Americans are without work or forced into part-time jobs. )
How do we even wrap our minds around a number so large? Here’s the example that brings it down to earth for me. If we had progressive taxes that reduced their wealth to a trifling $100 million each, we’d have enough money to set up a trust fund whose interest could provide tuition-free higher education for students at every public college and university in perpetuity. Imagine that. Our kids could actually leave college without carrying tens of thousands of dollars of debt on their backs.
Could those 400 special people be able to get by on just $100 million a year? I think they might.
So why are we so fearful of taxing the super-rich? Here are the arguments I’ve heard.
1. They’ve earned it.
Really? The concept of “earning” is murky when you consider the array of corporate welfare programs we provide. Oil companies have their depletion allowances. Big sugar farmers have their sweet subsidies. The health insurance industry is exempt from anti-trust laws.
One way corporations spend their welfare checks is by providing top management with mind-boggling compensation packages. For instance, in 2009, our financial wizards netted about $150 billion in bonuses – as if in reward for crashing the economy. Were it not for our $10 trillion (not billion) in bailout funds, they would have earned nothing at all. In fact, the financial sector’s reckless gambling has lost us over $6 trillion in wealth. But the execs did quite well, thanks to taxpayer largesse.
You’d think we’d be crying out for a windfall profits tax to reclaim our money. But no.
2. Redistribution of Income is Un-American.
During the 2008 campaign, Joe the Plumber got his 15 minutes of fame when he slammed Obama for daring to utter the phrase “redistribution of income.” Of course, we redistribute income primarily through progressive taxation – having the rich pay a higher rate.
Joe didn’t mention that we already live in a world of massive redistribution. Only it’s from the bottom to the top. We still hear about how poor folks game the system and mooch off our hard earned tax dollars. They go to emergency rooms and don’t pay. They get Medicaid for free. And many don’t pay any taxes at all (mostly because their incomes are so impossibly low). But all of that is chump change compared to the gaming going on at the other end of the economic scale.
Just think of all the scams corporations and the rich are running: ever-rising credit card fees, predatory mortgages, usurious interest rates, check cashing ripoffs, monopoly pricing. They turn income into lower taxed capital gains, find offshore tax shelters, collect subsidies for their runaway shops. And then they netted the big one: Wall Street bailouts. Post-baillout, these too-big-to fail companies are getting even bigger. It all adds up to a major redistribution plan — from the many to the few.
During the post-WWII boom we had one of the fairest income distributions in the world. Not anymore. Today the gap between rich and poor is wider than at any time in U.S. history. Here’s a telling statistic: In 1970 the compensation ratio of the top 100 CEOs compared to the average worker was 45 to one. By 2008 it was 1,071 to one. You think they got that much smarter?
3. If we tax the wealthy, we’ll hinder investment and kill jobs.
This was the justification politicians and pundits used when they started cutting taxes and eliminating regulations in the late 1970s. Tax cuts were supposed to create a robust investment class whose dollars would fuel the new service economy. Since only the wealthy can make such investments, the argument went, we have to make sure they have the money they need to invest. Otherwise, where will all the new jobs come from?
In theory this sounds good. But we tried this experiment, and it didn’t work. When we cut taxes on the super-rich, we got a different kind of investment boom than the politicians and economists had promised. The wealthy literally ran out of investments in factories, equipment and even services. So they flocked to financial investments — which were supposedly safer and more profitable anyway. The super-rich laid their money down in the Wall Street casino, and helped puff up bubble after bubble. Profits in the financial sector soared. In 1960, the sector accounted for about 15 per cent of all corporate profits. By 2008 (before the crash, that is), it was almost 40 percent. The financial sector crased as the direct result of tax cuts for the super-rich and Wall Street deregulation.
4. Government’s too big already. We should be cutting the public sector, not raising taxes to expand it.
Many people (like those in and around the Tea Party) dislike tax scams by the wealthy, but dislike government even more. They’re outraged that public sector workers often have better wages and pensions than people in the private sector. They’ve made attacking public employees the new national blood sport.
With unemployment so high, public sector workers are an easy target. Why should taxpayers, many of whom have no pensions, finance the pensions of public sector workers? Why should we protect public sector jobs when we ourselves are unemployed?
Here’s one reason: Because cutting state and local payrolls would actually add to our economic woes. If we fire public sector workers, they’ll stop paying taxes — which will only add to the tax burden on those people who still have jobs.
Laid off public sector workers — and even those whose wages and benefits have been cut — don’t buy as many goods and services. This drop in demand triggers layoffs in the private sector — and a further slide in tax revenues. In short, public sector cutbacks contribute to an economic death spiral: plummeting tax revenues and ever more cutbacks.
By failing to tax the super-rich, we’re burrowing even deeper into a billionaire bailout society in which the rich keep on gambling away our money, knowing that we will bail them out if they lose. Yes, we need to regulate Wall Street. But we also need to recognize that these gambling addicts have too much money in their pockets. And society needs that money for constructive investments, not for more gambling.
In the end the real fiscal crisis is in our minds. We don’t have to keep fighting over the scraps the wealthy have left us. We can build a new kind of economy, but only if can summon up some courage. Do we have the nerve to tax the super-rich?
Les Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.
This article was originally published on the Huffington Post.