Wealth for the Common Good

Original Link: http://www.thenation.com/blogs/edcut/548904/wealth_for_the_common_good

By Katrina vanden Heuvel

The challenge for progressives and Democrats in these turbulent times is how to consistently and clearly explain the real causes of our current economic condition.

One problem is that we live in a center-left country with a center-right media that consistently misinforms people about the perils of debts, deficits, and tax increases, and purveys misinformation about a good but modest health care bill that rightwing talk radio, tea partiers and GOPsters would have Americans believe is a "socialist" power grab.

It's against that political backdrop that a just-released report from Wealth for the Common Good--a network of business leaders, high-income households and partners working together to promote shared prosperity and fair taxation--is a welcome and common sense antidote. History is always important, especially in the "US of Amnesia"--as writer Gore Vidal once put it--and this tight, fact-filled report gives us the history we need to understand how enormous tax cuts over the last 50 years have favored the wealthiest Americans at the expense of a strong and secure middle class. Its must-read facts and common sense ideas deserve and demand as much media attention as the tea partiers' kvetching.

What's crystal clear in this well-documented report--whose title might have been "The Real Story Behind Today's Unfair Economy"--is that the middle-class has largely been shafted by both Republicans and Democrats, whose campaign coffers are equally greased by wealthy donors. And the shift in the tax burden has fueled a rising inequality and concentration of wealth that weakens our democracy--as The Nation argued in its June 30, 2008 special issue, "The New Inequality."

That shift is clear just looking at the tax rates paid by the wealthiest Americans. From 1950 to 1963--even under that radical Republican President Dwight Eisenhower--the federal tax rate on personal income over $400,000 never dropped below 91 percent. Between 1936 and 1980 it never dropped below 70 percent. But today, the top personal income tax rate after the 2001 Bush tax cut is just 35 percent, and you can count on one hell of a fight with ConservaDems and the GOP just to let that expire at the end of this year so the rate will return to the modest 39.6 percent level of the Clinton years. The tax rate on capital gains--which most benefits those in the highest income brackets--dropped to 15 percent in 2003, down from as high as 39.9 percent in 1977.

With all the fury about the debt and deficits, it's worth reminding ourselves that if we close a few loopholes for the very rich, then presto, the current deficit would be significantly smaller. The Bush tax cuts for the wealthy between 2001-2008 cost the US Treasury $700 billion, with all of these billions added directly to the national debt. Retaining these tax cuts will cost $826 billion over the next decade. But while Bush exacerbated the tax shift, it was largely a done deal before he took office. Check out these stunning stats:

Between 1960 to 2004, the top 0.1 percent of U.S. taxpayers have seen the share of their income paid in total federal taxes drop from 60 to 33.6 percent. The top 400 income-earners have seen the share of their income they pay in federal income tax alone plummet from 51.2 percent in 1955 to 16.6 percent in 2007.

In 2007, if the top 0.1 percent of taxpayers had paid total federal taxes at the same rate as they paid in 1960, the federal treasury would have collected an additional $281.2 billion. If the top 400 had paid the same rate as it did in 1955 it would have meant an additional $47.7 billion in revenue. (The incomes of the top 400 have multiplied by 27 times--adjusted for inflation--since 1955, yet back then they paid over three times more of their incomes in federal income tax.)

Meanwhile, the middle class has seen their taxes increase. The report lays out that, "Despite all the 'tax cut' political rhetoric and action of recent years, average Americans have seen no tax savings at the federal level."

Taxpayers in the middle--who made more than the bottom 40 percent but less than the top 40 percent--saw an increase in their taxes, paying 15.9 percent of their incomes in total federal taxes in 1960 and 16.1 percent in 2004. Adding insult to injury, "Our children and grandchildren... will be asked to pay back, with interest, the trillions our federal government has been borrowing to offset our loss of tax revenue from wealthy taxpayers."

The result of this imbalanced, unjust, and out-of-whack tax shift?

A public investment deficit--seen in our crumbling infrastructure, lack of investment in a robust green economy, and rising tuition costs at public universities, to name just a few areas--and a concentration of wealth and power that bought a deregulated casino economy and subsequent economic collapse that the rest of us are paying for.

Yet despite this historic shift in the tax burden, the debate we are having on tax reform is inadequate to say the least.

What's really shocking is we can't even manage Tax Reform 101--to tax the hedge fund managers like we do normal working people. They pay a stunning 15 percent on their billions--a lower rate than teachers, cops, even their own assistants! (see here, here, and here.) And a 2008 GAO report found that two-thirds of US corporations paid zero federal income taxes from 1998-2005. Twenty-five percent of the largest US corporations had $1.1 trillion in gross sales in 2005 but paid no federal income taxes. Where is the debate on corporate tax rates and loopholes? If corporations are now people, can't they start paying taxes like people too? (Not if their new Supreme Court-sponsored campaign ads can help it.)

Here are some examples of what a smart tax reform program would look like as prescribed by the Wealth for the Common Good report: End the income tax cuts for households earning more than $250,000 and raise capital gains and dividend rate from 15 to 20 percent ($45 billion increase in revenues); a progressive estate tax on estates worth over $2 million or $4 million for a couple--taxing no more than one in every 200 estates--generating $40 billion immediately and over $100 billion a decade from now; end overseas tax havens used by the likes of Citigroup and Best Buy ($100 billion per year); a modest financial transaction tax ($100 billion per year); a new 50 percent tax bracket for income over $2 million ($60 billion per year).

This is the kind of common sense, creative thinking that needs to be taken up by elected officials who understand that another generation of this tax madness will lead to ever higher concentrations of wealth, gut an already weakened middle class, and unravel the American Dream.