Tuesday, May 17, 2011

Robert Reich on Financing the Government

Reich comes up with a novel idea to finance the deficit: raise the taxes on the rich! From his blog:
Forty years ago, wealthy Americans financed the U.S. government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money. While foreigners own most of our national debt, over 40 percent is owned by Americans – mostly the very wealthy.

This great switch by the super rich – from paying the government taxes to lending the government money — has gone almost unnoticed. But it’s critical for understanding the budget predicament we’re now in. And for getting out of it.

Over that four decades, tax rates on the very rich have plummeted. Between the end of World War II and 1980, the top tax bracket remained over 70 percent — and even after deductions and credits was well over 50 percent. Now it’s 36 percent. As recently as the late 1980s, the capital gains rate was 35 percent. Now it’s 15 percent.

Not only are rates lower now, but loopholes are bigger. 18,000 households earning more than a half-million dollars last year paid no income taxes at all. In recent years, according to the IRS, the richest 400 Americans have paid only 18 percent of their total incomes in federal income taxes. Billionaire hedge-fund and private-equity managers are allowed to treat much of their incomes as capital gains (again, at 15 percent).

Meanwhile, more and more of the nation’s income and wealth have gone to the top. In the late 1970s, the top 1 percent took home 9 percent of total national income. Now the top 1 percent’s take is more than 20 percent. Over the same period, the top one-tenth of one percent has tripled its share.

Wealth is even more concentrated at the top — more concentrated than at any time since the Gilded Age of the late 19th century.

...

The great irony is if America’s super rich financed the U.S. government the way they used to – by paying taxes rather than lending the government money – that long-term budget deficit would be far lower.


This is why a tax increase on the super rich must be part of any budget agreement. Otherwise the great switch by the super rich will make the income and wealth gap far wider.

Worse yet, average working Americans who can least afford it will either lose the services they depend on, or end up with a tax burden they cannot bear.
I'm guessing this creating idea for financing the American deficit isn't going to be touted by Republicans or Democrats. Too many campaign funds come from the rich to ever consider biting the hands that feeds the politician.

2 comments:

thomas said...

RY;

I know its not as much as they would be taxed, but it would help a lot if they would just consider the money spent on politics as tax money.. What if they paid taxes instead of playing politics. They (the rich and wall street and corporations) spend a great deal on lobbyist and campaign contributions, just to avoid being taxed and to get favors (consider Goldman Sachs). They pay a lot of money to avoid paying money.. Just think what could be done with that money. Kind of like the lazy guy working real hard to avoid work.

RYviewpoint said...

Thomas:

Yep, you are right. All their bribes and lobbying money and graft and payola doesn't equal the tax bite if they had to pay their full share.

I got a chuckle out of your comment about people working hard to keep from working. My mother had a sister (when they were kids) who pulled that stunt all the time. She would get all peckish and then swoon to sell the idea that she was too sick to work. She worked overtime avoiding work. My mother got so mad once she grabbed a frying pan and banged her upside the head out of frustration.

You would have taught her to stop her tricks. Nope. She was incorrigible. I remember visits with her. She was always full of stories and she always came up with a new life-ending exotic illness that she was into or just overcoming. We would make fun of her in front of her, but that didn't stop her. She was a born "entertainer".

I'm thinking these guys dodging taxes are like my aunt. No matter how you corral them or try to pin them down, they are going to squirm and get away. They just don't think they "should" pay taxes like everybody else. I think they are like Strauss-Kahn, they just don't believe the "rules" apply to them.