Blame Budget Shortfall On Tax Cuts For The Rich
Let’s leave aside the question of fairness, for now. The paramount question is whether the United States is generating the revenue it needs to fund the public structures that are essential for business and individual prosperity—things like transportation networks, schools, healthcare, college, and many other important functions of government in a capitalistic society. By any indicator the answer is that the United States is falling short in providing both the revenue to fund these services as well as providing for their ongoing maintenance and modernization.
Federal tax revenue is lower than it has been in half a century. The federal government’s revenues from income taxes on households make up 6.4 percent of GDP; which is 1.1 percentage points lower than half a century ago, and 3.8 percentage points lower than the peak in the boom year of 2000. Our current tax revenues are not only low relative to historical levels, but they rank low internationally as well. Our total tax revenues, including federal, state, and local taxes, comprise 27 percent of GDP, a level far lower than most of our peers in the developed world. In fact, among the 33 nations of the Organisation for Economic Co-operation and Development, only three (Korea, Turkey, and Mexico) take in proportionately less tax revenue than we do.
And so we come to the question of whether the richest in America are paying their fair share. The reality is that the steep fall in federal tax revenue was caused largely by cuts in the tax rates for the very wealthiest households. The current marginal tax rate for the highest income bracket—in other words, the tax rate on income above a threshold for the wealthiest taxpayers—of 35 percent is among the lowest since WWII, far lower than the 80 percent rate during the high-growth 1960s and the 39.6 percent rate of much of the 1990s. Of course, most rich households do not pay the published rate—after taking into account deductions and other big tax benefits, the actual percentage of a rich household’s entire income paid in taxes has also fallen precipitously, dropping from 31.3 percent for millionaires in 1993 to 22 percent today.
So, no, the rich are not paying their fair share of taxes—neither as defined by historical American norms or by international standards. And, the result of that shirking of responsibility is sluggish growth, diminished social mobility, declining educational attainment, and lost business efficiencies due to our insufficient and often outdated transportation and information networks.
By: Tamara Draut, U. S. News and World Report, December 16, 2011
Morgan Stanley Executive Calls For Higher Taxes On The Rich: ‘We Cannot Cut Our Way To Greatness’
Several wealthy bankers, investors, and entrepreneurs have called for higher taxes on the rich as an important part of reducing the nation’s deficit, led most prominently by Warren Buffett. “It is mathematically impossible to invest enough in our economy and our country to sustain the middle class (our customers) without taxing the top 1 percent at reasonable levels again,” wrote wealthy entrepreneur Nick Hanauer in an op-ed last week. “Significant tax increases on the about $1.5 trillion in collective income of those of us in the top 1 percent could create hundreds of billions of dollars to invest in our economy, rather than letting it pile up in a few bank accounts like a huge clot in our nation’s economic circulatory system.”
Joining the list of those in financial positions of power that are calling for higher taxes on the rich is Morgan Stanley Chief Financial Officer Ruth Porat who, as the Huffington Post’s Bonnie Kavoussi reported, said over the weekend that it’s “inappropriate” that income inequality in the country is continuing to grow while taxes on the rich stay low:
“The wealthiest can afford to pay more in taxes. That’s a part of the deal. That makes sense. I don’t know anyone that doesn’t agree with that,” Porat said. “The wealth disparity between the lowest and the highest continues to expand, and that’s inappropriate.” “We cannot cut our way to greatness,” she added.
The rising compensation of executives and those in the banking industry is one of the major factors driving the nation’s income inequality. And at the same time that the rich have been getting richer, their tax rates have been plummeting. It’s refreshing to hear someone in the banking industry acknowledge these truths and want to rectify them, rather than decrying higher taxes on the rich as akin to the Nazi invasion of Poland.
By: Pat Garofalo, Think Progress, December 5, 2011
“Capitalists Without Customers Are Out Of Business”: Raise Taxes On Rich To Reward True Job Creators
It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.
Trouble is, sometimes the things that we know to be true are dead wrong. For the larger part of human history, for example, people were sure that the sun circles the Earth and that we are at the center of the universe. It doesn’t, and we aren’t. The conventional wisdom that the rich and businesses are our nation’s “job creators” is every bit as false.
I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. (MSFT) in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc. (AMZN)
Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.
That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
Theory of Evolution
When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.
It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.
And that’s what has been happening in the U.S. for the last 30 years.
Since 1980, the share of the nation’s income for fat cats like me in the top 0.1 percent has increased a shocking 400 percent, while the share for the bottom 50 percent of Americans has declined 33 percent. At the same time, effective tax rates on the superwealthy fell to 16.6 percent in 2007, from 42 percent at the peak of U.S. productivity in the early 1960s, and about 30 percent during the expansion of the 1990s. In my case, that means that this year, I paid an 11 percent rate on an eight-figure income.
One reason this policy is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don’t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.
It’s true that we do spend a lot more than the average family. Yet the one truly expensive line item in our budget is our airplane (which, by the way, was manufactured in France byDassault Aviation SA (AM)), and those annual costs are mostly for fuel (from the Middle East). It’s just crazy to believe that any of this is more beneficial to our economy than hiring more teachers or police officers or investing in our infrastructure.
More Shoppers Needed
I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or enjoy any meals out. Or to make up for the decreasing consumption of the tens of millions of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It’s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.
It is mathematically impossible to invest enough in our economy and our country to sustain the middle class (our customers) without taxing the top 1 percent at reasonable levels again. Shifting the burden from the 99 percent to the 1 percent is the surest and best way to get our consumer-based economy rolling again.
Significant tax increases on the about $1.5 trillion in collective income of those of us in the top 1 percent could create hundreds of billions of dollars to invest in our economy, rather than letting it pile up in a few bank accounts like a huge clot in our nation’s economic circulatory system.
Consider, for example, that a puny 3 percent surtax on incomes above $1 million would be enough to maintain and expand the current payroll tax cut beyond December, preventing a $1,000 increase on the average worker’s taxes at the worst possible time for the economy. With a few more pennies on the dollar, we could invest in rebuilding schools and infrastructure. And even if we imposed a millionaires’ surtax and rolled back the Bush-era tax cuts for those at the top, the taxes on the richest Americans would still be historically low, and their incomes would still be astronomically high.
We’ve had it backward for the last 30 years. Rich businesspeople like me don’t create jobs. Middle-class consumers do, and when they thrive, U.S. businesses grow and profit. That’s why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.
So let’s give a break to the true job creators. Let’s tax the rich like we once did and use that money to spur growth by putting purchasing power back in the hands of the middle class. And let’s remember that capitalists without customers are out of business.
By: Nick Hanauer, Bloomberg, November 30, 2011
Grover Norquist Tells GOP That Raising Taxes On The Middle Class Doesn’t Count As A Tax Increase
Anti-tax zealot Grover Norquist, the president of Americans For Tax Reform and author of the radical anti-tax pledge that has played a significant role in hamstringing budget and deficit-reduction negotiations, has said that it is unacceptable for those who have signed his pledge to vote in favor of any tax increase. But now that President Obama and congressional Democrats are backing a tax cut aimed at stimulating economic growth, Norquist has changed his tune.
Norquist met with Republican members today to let them know that opposing the extension of the payroll tax cut — which would provide many families an extra $1,000 a year — would not amount to supporting a tax increase, National Journal’s Billy House reported today:
That stands in contrast, however, to Norquist’s position on tax cuts for the wealthy. Norquist has repeatedly warned GOP members about voting in favor of repealing the Bush tax cuts for the rich or tax hikes on millionaires, even verbally sparring with a member of a group of millionaires advocating for higher taxes on themselves last month in Washington, D.C. And yet, when it comes to tax cuts for the middle class meant to drive economic recovery, Norquist clearly takes a different stance.
Republicans who have defended those tax breaks for the wealthy aren’t so sure about holding the Norquist position, though. House Majority Leader Eric Cantor (R-VA) warned his rank and file this morning about opposing the extension, telling them that “taxes are a Republican issue and you aren’t a Republican if you want to raise taxes on struggling families to fund bigger government.” Multiple Republican senators, meanwhile, have come out in favor of the extension, and Sen. Sue Collins (R-ME) even proposed raising taxes on some wealthy Americans to pay for it.
By: Travis Waldron, Think Progress, December 1, 2011
Social Inequality: The Paradox Of The New Elite
It’s a puzzle: one dispossessed group after another — blacks, women, Hispanics and gays — has been gradually accepted in the United States, granted equal rights and brought into the mainstream.
At the same time, in economic terms, the United States has gone from being a comparatively egalitarian society to one of the most unequal democracies in the world.
The two shifts are each huge and hugely important: one shows a steady march toward democratic inclusion, the other toward a tolerance of economic stratification that would have been unthinkable a generation ago.
The United States prides itself on the belief that “anyone can be president,” and what better example than Barack Obama, son of a black Kenyan immigrant and a white American mother — neither of them rich.
And yet more than half the presidents over the past 110 years attended Harvard, Yale or Princeton and graduates of Harvard and Yale have had a lock on the White House for the last 23 years, across four presidencies. Thus we have become both more inclusive and more elitist.
It’s a surprising contradiction. Is the confluence of these two movements a mere historical accident? Or are the two trends related?
Other nations seem to face the same challenge: either inclusive, or economically just. Europe has maintained much more economic equality but is struggling greatly with inclusiveness and discrimination, and is far less open to minorities than is the United States.
European countries have done a better job of protecting workers’ salaries and rights but have been reluctant to extend the benefits of their generous welfare state to new immigrants who look and act differently from them. Could America’s lost enthusiasm for income redistribution and progressive taxation be in part a reaction to sharing resources with traditionally excluded groups?
“I do think there is a trade-off between inclusion and equality,” said Gary Becker, a professor of economics at the University of Chicago and a Nobel laureate. “I think if you are a German worker you are better off than your American equivalent, but if you are an immigrant, you are better off in the U.S.”
Professor Becker, a celebrated free-market conservative, wrote his Ph.D. dissertation (and first book, “The Economics of Discrimination”) to demonstrate that racial discrimination was economically inefficient. American business leaders seem to have learned that there is no money to be made in exclusion: bringing in each new group has simply created new consumers to court. If you can capture nearly three-quarters of the economy’s growth — as the top 1 percent did between 2002 and 2006 — it may not be worth worrying about gay marriage or skin color.
“I think we have become more meritocratic — educational attainment has become increasingly predictive of economic success,” Professor Becker said. But with educational attainment going increasingly to the children of the affluent and educated, we appear to be developing a self-perpetuating elite that reaps a greater and greater share of financial rewards. It is a hard-working elite, and more diverse than the old white male Anglo-Saxon establishment — but nonetheless claims a larger share of the national income than was the case 50 years ago, when blacks, Jews and women were largely shut out of powerful institutions.
Inequality and inclusion are both as American as apple pie, says Jerome Karabel, a professor of sociology at the University of California, Berkeley, and author of “The Chosen,” about the history of admission to Harvard, Yale and Princeton. “I don’t think any advanced democracy is as obsessed with equality of opportunity or as relatively unconcerned with equality of condition,” he says. “As long as everyone has a chance to compete, we shouldn’t worry about equality. Equality of condition is seen as undesirable, even un-American.”
The long history of racial discrimination represented an embarrassing contradiction — and a serious threat — to our national story of equal opportunity. With Jim Crow laws firmly in place it was hard to seriously argue that everyone had an equal chance. Civil rights leaders like the Rev. Dr. Martin Luther King Jr. were able to use this tradition to draw support to their causes. “Given our culture of equality of opportunity, these kinds of rights-based arguments are almost impossible to refute,” Professor Karabel said. “Even in today’s conservative political climate, opponents of gay rights are losing ground.”
The removal of traditional barriers opened up the American system. In 1951 blacks made up less than 1 percent of the students at America’s Ivy League colleges. Today they make up about 8 percent. At the same time, America’s elite universities are increasingly the provinces of the well-to-do. “Looking at the data, you see that the freshman class of our top colleges are more and more made up of the children of upper- and upper-middle-class families,” said Thomas J. Espenshade of Princeton, a sociologist.
Even the minority students are more affluent, he noted; many of them are of mixed race, or the children of immigrants or those who benefited from affirmative action.
Shamus Khan, a sociologist at Columbia and the author of “Privilege,” a book about St. Paul’s, the prep school, agreed that there had been a change in the composition of the elite. “Who is at elite schools seems to have shifted,” he said. “But the elite seem to have a firmer and firmer hold on our nation’s wealth and power.”
Still the relatively painless movement toward greater diversity should not be dismissed as mere window dressing.
“After the immigration reform of 1965, this country went from being the United States of Europe to being the United States of the World. All with virtually no violence and comparatively little trauma,” Professor Karabel said. This is no small thing, particularly when you compare it to the trauma experienced by many European societies in absorbing much lower percentages of foreign-born citizens, few of whom have penetrated their countries’ elites.
Moreover, inequality has grown partly for reasons that have little or nothing to do with inclusion. Almost all advanced industrial societies — even Sweden — have become more unequal. But the United States has become considerably more unequal. In Europe, the rights of labor have remained more central, while the United States has seen the rise of identity politics.
“There is much less class-based organization in the U.S,” said Professor Karabel. “Race, gender and sexual orientation became the salient cleavages of American political life. And if you look at it — blacks, Hispanics and women have gained somewhat relative to the population as a whole, but labor as a category has lost ground. The groups that mobilized — blacks, Hispanics, women — made gains. But white male workers, who demobilized politically, lost ground.”
One of the groups to become mobilized in response to the protest movements of the 1960s and early 1970s was the rich. Think tanks dedicated to defending the free-enterprise system — such as the Cato Institute and the Heritage Foundation — were born in this period. And it is not an accident that the right-wing advocate Glenn Beck held a national rally on the anniversary of King’s “I Have a Dream” speech in front of the Lincoln Memorial. Republicans now defend tax cuts for the richest 2 percent using arguments and language from the civil rights movements: insisting that excluding the richest earners is unfair.
Removing the most blatant forms of discrimination, ironically, made it easier to justify keeping whatever rewards you could obtain through the new, supposedly more meritocratic system. “Greater inclusiveness was a precondition for greater economic stratification,” said Professor Karabel. “It strengthened the system, reinvigorated its ideology — it is much easier to defend gains that appear to be earned through merit. In a meritocracy, inequality becomes much more acceptable.”
The term “meritocracy” — now almost universally used as a term of praise — was actually coined as a pejorative term, appearing for the first time in 1958, in the title of a satirical dystopian novel, “The Rise of the Meritocracy,” by the British Labour Party leader Michael Young. He warned against the creation of a new technocratic elite in which the selection of the few would lead to the abandonment of the many, a new elite whose privileges were even more crushing and fiercely defended because they appeared to be entirely merited.
Of the European countries, Britain’s politics of inequality and inclusion most resemble those of the United States. Even as inequality has grown considerably, the British sense of economic class has diminished. As recently as 1988, some 67 percent of British citizens proudly identified themselves as working class. Now only 24 percent do. Almost everybody below the Queen and above the poverty line considers himself or herself “middle class.”
Germany still has robust protections for its workers and one of the healthiest economies in Europe. Children at age 10 are placed on different tracks, some leading to university and others to vocational school — a closing off of opportunity that Americans would find intolerable. But it is uncontroversial because those attending vocational school often earn as much as those who attend university.
In France, it is illegal for the government to collect information on people on the basis of race. And yet millions of immigrants — and the children and grandchildren of immigrants — fester in slums.
In the United States, the stratification of wealth followed several decades where economic equality was strong. The stock market crash of 1929 and the Great Depression that followed underscored the excesses of the roaring ’20s and ushered in an era in which the political climate favored labor unions, progressive taxation and social programs aimed at reducing poverty.
From the 1930s to the 1960s, the income of the less affluent Americans grew more quickly than that of their wealthier neighbors, and the richest 1 percent saw its share of the national income shrink to 8.9 percent in the mid-1970s, from 23.9 percent in 1928. That share is now back up to more than 20 percent, its level before the Depression.
Inequality has traditionally been acceptable to Americans if accompanied by mobility. But most recent studies of economic mobility indicate that it is getting even harder for people to jump from one economic class to another in the United States, harder to join the elite. While Americans are used to considering equal opportunity and equality of condition as separate issues, they may need to reconsider. In an era in which money translates into political power, there is a growing feeling, on both left and right, that special interests have their way in Washington. There is growing anger, from the Tea Party to Occupy Wall Street, that the current system is stacked against ordinary citizens. Suddenly, as in the 1930s, the issue of economic equality is back in play.
By: Alexander Stille, The New York Times Sunday Review, October 22, 2011
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