Tag Archives: tax policy

Restoring Traditional America

Over the weekend The Daily Kos highlighted a cartoon from Tom the Dancing Bug (cartoonist Rueben Bolling) that responded to Bill O’Reilly’s election night claim that Obama’s win signaled the death of traditional America. According to O’Reilly, “the demographics are changing, it’s not a traditional American anymore.” Bolling wondered what would happen if Barack Hussein Obama traveled back in time to the world of Leave it to Beaver. In this imaginary scenario, Obama tells the Cleavers of his plan to raise the marginal tax rate on the wealthiest Americans, reduce the gap between CEO pay and that of the lowest paid employees, and bolster the social safety net. The “Beave” and his family point out that those features were already in place in their traditional 1960s America. “Golly, mister,” the Beave exclaims, “I think you’re bringing back traditional America.”

I do, too. I am writing a book about how workers and unions were represented in 1950s popular culture.  In Striking Images: Labor Unions on Screen and in the Streets in the 1950s, I argue that workers were represented in popular culture more often, and more positively, than we remember. This is, in part, because union membership was at its highest point in U.S. history (roughly 35% of all US households). Unions were also active, not passive. There were more than 30,000 strikes over the course of the 1950s.  In other words, union membership was traditional.

For example, in 1965 Eisenhower, declared that “the protection of the right of workers to organize into unions and to bargain collectively is the firm and permanent policy of the Eisenhower Administration.” Rachel Maddow once quipped about Eisenhower’s relatively liberal policies that she was “in almost total agreement with the Eisenhower-era Republican party platform.”

As we return to a more traditional America, how are ordinary workers being represented in popular culture? This is a question we often ask on this blog, and we make our share of withering critiques, as Susan Ryan did when she addressed the phenomenon of “extreme work” reality television and how workers are being exploited in front of and behind the camera.

But there are some other more positive, and possibly even authentic ways in which workers are being represented in popular culture. Here’s a quick run down:

Striking workers are back in the news. Thanks to the massive (and largely successful) Chicago teacher’s strike and a well-organized blitz of Black Friday job actions at Walmarts across the country, the mainstream media has been covering strikes with more sympathy than in years past. Do a search for “Black Friday” and “workers” and more than 2 million hits pop up. While some of the coverage of Black Friday’s job actions underplayed the overall impact of the Walmart actions, other headlines suggested the range and the power of the strikes which took place in more than 100 cities in 46 states.

The Ed Show. Ed Schultz, the one time sports broadcaster and conservative shock jock now spins his blue-collar bluster in a more progressive direction on MSNBC every weeknight at 8:00 PM. Schultz starts every show with the tag line “Let’s get to work.” If you were watching The Ed Show last week you would have seen coverage of the raw deal that Hostess workers were given in the Twinkie show down, a piece about the unionization of exotic dancers, a report on a union on the rise in Phoenix, Arizona, and an exposé on what Walmart really pays its workers. You won’t find this much working-class related news in video form in one place anywhere else.

Blue: America at Work and Blue: Portrait of an American Worker. In a coincidence of naming, two photographers of the contemporary American labor scene have titled their projects “Blue.” Ian Wagreich’s Blue: America at Work was “kickstarted” in August and includes stunning black and white portraits of American workers in industrial settings. The photographs are visually gorgeous, and they are as much as about aestheticizing the industrial landscape as they are about giving a voice to individual workers. They remind me of Charles Sheeler’s arresting photographs of the Ford River Rouge plant. Waigreich’s work photographs are currently on view (until December 10th at Washington D.C.’s Art Museum of the Americas in a show called “On Labor”). Photographer Carl Corey’s photographs from his collection Blue: Portrait of an American Worker are in color, and provide a more literal “close up” of the workers themselves. One of Corey’s goals in taking these photographs, as he explained in an interview with The Wooly Pulpit, was to advocate for American workers: “my hope is awareness will breed support for the American Worker.” The workers look proud, even stoic, and the photographs remind me a bit of the classic worker portraits taken by Milton Rogovin.

Current TV’s profile of the American worker. During the lead up to the election, Current TV posted a new worker profile every day for 30 days. Thirteen of the workers profiled were women, and 10 were African American, Latino, or Asian. The jobs covered included cop, firefighter, graphic designer, bus driver, Boeing mechanic, bartender, CPA, nurse, farmworker, and web developer. The profiles included detailed interviews, includingquestions about union membership and political leanings. Though not all of the workers profiled were working class, the interviews echoed common themes. Everyone who had health insurance was grateful for it, and everyone who did not have it wanted it. When asked “what is the one thing you could change about your job if you could,” almost everyone wanted better pay and/or benefits. One of the most inspiring quotes came from the Boeing mechanic, Monico Bretana, the highest paid union worker in the group: “I would have to say that I’m a working guy; I work for my money. Just like everybody else, I just want to be treated fairly, I just want to have a decent living wage, decent benefits to cover me and my family, and the union has provided that for us. And I want people to know that unions are not what people perceive anymore. We’re here to help the middle class, we’re here to help maintain a good living standard.”

Now doesn’t that sound sort of like the 1950s? Of course, I don’t want to go back to the 1950s altogether. I don’t want to go back to Jim Crow America, or Operation Wetback America, or Mad Men America. But when it comes to taxes on the wealthy (can we get the marginal tax rate back to the 1950s rate of 91%?), the tradition of union membership, and images of proud, beautiful blue-collar workers, I would be happy to go back in time.

Kathy M. Newman

“Job Creators” and “Capitalists Like Me”

It’s one thing when one of the world’s wealthiest capitalists argues that he is not being taxed fairly because he is not being taxed enough, as Warren Buffett did last August.  But it’s quite another when a wealthy capitalist explains why the kind of gross inequality of income the U.S. now has is actually bad for business.  That’s what Nick Hanauer did in a TED University talk last month about “job creators”:  “In a capitalist economy, the true job creators are consumers, the middle class. And taxing the rich to make investments that grow the middle class, is the single smartest thing we can do for the middle class, the poor and the rich [emphasis added].”

Hanauer is a super-wealthy venture capitalist who was an early investor in Amazon.com and founded a couple of internet start-ups that were bought by Overstock.com and Microsoft – the latter for a tidy $6.4 billion.  In his TED talk he denied being a “job creator,” and with directness, humor, and plain-spoken common sense, he attacked the notion that folks like him create jobs.  It’s only 6 minutes long, but it sparked an internet fury when TED refused to post the speech on its web site, as it ordinarily does.  Time Magazine’s links-rich retrospective of the controversy that forced TED to post the speech can bring you up-to-date if you didn’t know about it.

Certifiably successful capitalists (and Buffett and Hanauer make Republican Presidential Nominee Mitt Romney’s $250-million net wealth look mediocre) arguing that they should be taxed more is the classic man-bites-dog story that is supposed to attract journalists.  In both cases Buffett and Hanauer did eventually get a fair amount of attention, but only because they are savvy entrepreneurs who made extraordinary efforts to get that attention.  Once attended to, however, they are treated as outliers, interesting personalities, eccentric curiosities – sort of like men who bite dogs – rather than initiating discussion about the issues they tried to raise.

Who or what creates jobs?  How could our tax system be fairer – and simpler?  And what is the connection between jobs and taxes?  These are big issues that should be at the center of the political debate in this year’s election, as the two mainstream political parties have very different answers to them.

First, there is a sense in which capitalists – whether investors, owners, or top management – do create jobs.  They make decisions to start or expand businesses that require new employees.  The question is why they decide to start or expand businesses.  Is it because they have a lot of spare money, or is it because they think they can sell lots more of the product or service they provide, thereby making a handsome profit?  In general, both spare money and profit opportunities based on potential consumer demand are necessary.  But what is more necessary at any given time varies in specific economic circumstances, and the question becomes an empirical one about our current circumstance.   Here’s where facts and figures matter, and we are fortunate to have an extremely clear set of them to answer these questions.

There is lots and lots of spare money in the hands of rich people and corporations, so much that they don’t know what to do with it all, and there’s not enough in the hands of workers and consumers.  This could be a temporary situation based on the continuing slow growth of the Great Recession, but the well-documented huge and growing inequality of income in the U.S. clearly suggests that there is a long-term and worsening problem of insufficient consumer demand.  When the top 10% get about half of all income, with the top 1% getting the lion’s share of that, the bottom 90% does not have sufficient income to provide the consumer demand that would provide enough profitable opportunities for capitalists to use their spare money to expand businesses and, thereby, create jobs.  This is what Nick Hanauer means when he says “the true job creators are consumers,” not “capitalists like me.”

The Republican economic program – whether Mitt Romney’s, the Ryan Plan that was passed in the House of Representatives more than once, or the approach of GOP state governors such as Wisconsin’s Scott Walker – responds to a diagnosis of the problem that will not stand empirical scrutiny.  Reducing taxes on corporations and wealthy individuals assumes that capitalist “job creators” are not creating enough jobs because they do not have enough spare money, which is clearly not the case.  Massive, if largely unspecified, cuts in government spending at all levels will further reduce total demand (the sum of consumer, investor and government spending) and, thereby, economic growth.  The combination of cutting these taxes and government spending will further worsen income inequality, making the insufficiency of consumer demand even worse – initiating a new and potentially “greater” recession, as it has in England.

The Democratic economic program – from President Obama’s weak and late-arriving American Jobs Act plus the tax plan in his 2013 Budget to the full-throated Congressional Progressive Caucus’s People’s Budget – increases taxes on top earners and increases government spending for a wide variety of activities that would increase the number of jobs and, thereby, overall consumer spending power.  It assumes that rich people and corporations have enough spare money and that workers and consumers need more.

These are startlingly different directions.  They cannot both be right, and compromise between them, besides being very difficult, would likely involve dilution not correction.  But these are the choices we face this year as American voters.  Both facts and logic favor the Democrats, but that will matter only if they, and especially the President, have the wit and courage to insist on explaining them to so-called “low-information voters.”  So far the President has favored gimmicks like the Buffett Rule rather than clear explanations of why a thorough redistribution of wealth and income is necessary and in the common good.  The President and other Democrats need to make their economic case clearly and boldly.  They should not wait for the occasional capitalist superstar to bite a dog.

Jack Metzgar

Chicago Working-Class Studies

 

 

Work and Taxes

If I earned more than a million dollars a year, I would be for the Buffett Rule – not for the reasons that famous billionaires like Warren Buffett and George Soros are for it: because it’s just fair.  I’d be for it because in the long run it would save me money by distracting the public from seeing the roots of class warfare as it is fought in the U.S. Tax Code.

The Buffett Rule says simply that anyone who earns more than $1 million a year should pay at least 30% of their income in federal income taxes.  Legislation to institute this rule is supposed to be voted on this week in the U.S. Senate, sponsored by Democrats and ballyhooed by the Obama Administration.  It won’t pass the House, of course, so it won’t actually affect anyone’s taxes, but it’s a helluva good campaign talisman for Obama and Democrats to run on.

The point of the Buffett Rule is to avoid the kind of obvious inequity that Warren Buffett pointed to in his August New York Times op-ed:  In 2010 Buffett, the second richest man in the world, paid only about 17% of his income in federal taxes (income and payroll taxes) while the 20 people who work directly for him paid an average of 36% of their much smaller incomes.

The Buffett Rule was not devised by Buffett, but by the Obama Administration.  And the first thing that should be noted is that even at 30%, Buffett and other millionaires will still be paying less than the 20 people who work for Buffett, including his now-famous secretary.  More importantly, however, Buffett was clear about why he and other investors paid lower effective tax rates than most workers: income that you do not work for is taxed at a lower rate than income you do work for.

Why this isn’t a scandal in a country that supposedly prides itself on its “hard-working people” is a mystery to me.  If you get your money by investing in stocks and bonds, your income is taxed at a 15% rate because it is unearned.  What’s more, you pay nothing in payroll taxes (i.e., nothing for Social Security and Medicare) because you’re not on anybody’s payroll.

Buffett himself actually still works and draws a salary, and on that part of his income he pays a top rate of 35% and regular payroll taxes on the first $110,000 of that income. But the vast majority of his income comes from investments – capital gains and dividends – and on that part he pays only 15% and no payroll taxes.  Here’s how Buffett explains it: “If you make money with money . . . your percentage may [even] be a bit lower than mine.  But if you earn money from a job, your percentage will surely exceed mine – most likely by a lot.”

Fair shares and percentages aside, the U.S. Tax Code literally says that investors are more valuable than workers, and therefore, should be taxed less. Or it says that investors need more encouragement to invest than workers need to work.  In any case, our tax code fairly screams that only losers and suckers work for a living.

The obvious remedy to this moral abomination is to tax capital gains and dividends (called “unearned income”) the same as wages and salaries (called “earned income”) on the principle that you should not be taxed at a higher rate for earning your income.  That’s how it was after Ronald Reagan signed the 1986 tax reform law, and for most of our history before that.  It was under Presidents Bush I, Clinton, and Bush II that investor privilege was installed in our tax code.  (See the Citizens for Tax Justice’s recent report, “Policy Options to Raise Revenue.”)

Taxing capital and labor income at equal rates would produce much more revenue for the government: $53 billion a year, according to Citizens for Tax Justice, while the Buffett Rule would raise only $17 billion (with other estimates being as low as $5 billion).  You can see why as a greedy, but rational millionaire I’d embrace the so-called Buffett Rule in order to shift the focus away from the basic class bias of our tax code.

There is a theory behind privileging investors by taxing them less.  Namely, investors are “job creators,” and any additional taxes on them will lead to less investment and, thus, slower economic growth, fewer jobs, and even higher unemployment than we have now.  I’ve critiqued this theory before, giving it some credence when it was initially articulated in the 1970s, but showing how it is clearly irrelevant today because investment lags not for lack of money (of which investors have plenty), but for lack of consumer demand that would give investors a reason to invest.  But that’s just me.  I’m not one of the greatest investors of all time.  Here’s what that guy said in his August op-ed:

Back in the 1980s and 1990s, tax rates for the rich were far higher . . . . .   According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.  I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

There are a lot better rules to derive from Buffett’s puckish op-ed than the one the Democrats are using to embarrass Mitt Romney, whose effective tax rate of 14% is even lower than Buffett’s.  Taxing all income at the same graduated rates, for example, would be both simpler and fairer.

While I was writing this post, the Obama-Biden campaign sent me an e-mail asking that I sign a petition supporting the Buffett Rule.  I signed it because Obama’s tax policy is way better than Republicans’ proposed tax cuts for the wealthy.  But the at-least-30%-for-millionaires is a political gimmick without principle, and it leaves in place a tax code that dishonors work and the people who do it.

Jack Metzgar

Chicago Working-Class Studies

The War on the Working Class

For the last month, the attacks by Republican governors and state legislators on public sector unions in Wisconsin, Ohio, and elsewhere have dominated national news.  The target is not just these unions but on the labor movement in general.  But state bills barring or restricting collective bargaining are just one battlefront in a growing war on the working class – a war that will have consequences for the middle class, as well.

Of course, this isn’t a new war.  Unions and the working class have been under assault since the 1970s, when companies closing plants in places like Youngstown explained their abandonment of American industrial communities as “economic necessity” because American workers were too expensive.  In the 80s, Ronald Reagan led one of the first governmental battles when he fired air traffic controllers in the PATCO strike.  During the 90s, labor regulations made organizing unions increasingly difficult, and employers began to rely more on contingent and part-time workers and to outsource even supposedly secure middle-class jobs. At the same time, deregulation and tax policies helped income inequality grow ever larger as programs to aid the poor were dismantled – by a Democratic president, no less.  Business practices encouraged lowering wages and reducing benefits – moves that many workers, including those in unions, accepted out of fear of losing their jobs altogether.  During the economic crisis of the last two years, hundreds of thousands of workers have lost jobs while corporations stockpile some of the largest cash reserves in history.  Think we’re exaggerating?  Billionaire Warren Buffet doesn’t think so.  He’s said that there is a class war going on in America and that his side is winning.

Despite Federal investigations that clearly lay the blame for the economic crisis at the foot of banks and the finance industry, the working class has become a scapegoat for the country’s economic and social problems.  Like commentators once said of Reagan, business and finance interests seem to be coated with Teflon.  Overwhelming evidence of their responsibility for the financial crisis slides right off.  Former Lehman Brothers exec John Kasich blames public workers, not the financial industry, for Ohio’s crisis, while in Wisconsin, the Koch Brothers are funding Scott Walker’s effort to blame workers for a budget shortfall that he just increased with yet another big tax cut.

Until recently, the attack was largely cultural as journalists, politicians, and commentators focused on exaggerated versions of working-class culture as the source of a variety of social ills.  During the 2008 election, we were told repeatedly that the working class was too racist to vote for Obama, and that claim of rampant racism was all too easy to reprise as the Tea Party started disrupting town hall meetings about health care.  Those ideas held even as Obama won the election and research showed that most Tea Party members were not working-class.  We hear it in the debate over education: if only poor and working-class parents spent more time reading to their kids, we would be more competitive against those well-educated Chinese.  And now it’s about the economy: if only those greedy public workers would stop insisting on getting affordable health insurance and reliable pensions, the rest of us could pay lower taxes and businesses would like us better – maybe they’d even bring jobs back to Ohio, Wisconsin, New Jersey, Indiana, or Michigan.

As states and the U.S. Congress are formulating budget bills, the attack is ramping up, and the ground is shifting.  It’s no longer enough to misrepresent or denigrate the working class.  In order to balance budgets that have been seriously skewed (or screwed) by huge tax cuts, mostly to the wealthy, our leaders say we need to cut services.  States are cutting back on health care programs for the poor, slashing funding for education (Walker’s budget for Wisconsin cuts $834 million from K-12 schools), and raising user fees on things like car registration and college tuition – regressive funding strategies that take a much larger bite out of the household budget of poorer families than of wealthier ones.  The budget bill passed by House Republicans cut funding for health care for poor women and reduced funding of Pell Grants, and Obama joined the fight by cutting heating assistance to the poor.

With these moves, the war has shifted from rhetoric to daily reality.  The result will be ugly.  Cuts in education at all levels will reduce both the quality and accessibility of education.   Cuts in health care will increase incidents of medical problems and could increase the birthrate among lower-income women who would no longer have easy access to the most reliable forms of birth control.  The attacks on public unions will lead to an immediate decline in household income for thousands of families and, in the longer term, less secure retirements.  Increasingly, older people will struggle to get by on reduced pensions.  The result will be increasing demand for state services such as Medicaid, food stamps, and other programs, as well as increases in homelessness.

Meanwhile, the working class and the middle class are losing their voice in the democratic process.  That’s true in the workplace, where both unionized and non-union workers have fewer opportunities to help shape working conditions and both feel increasingly vulnerable to being fired on a boss’s whim.  And it’s true in electoral politics, where the primary national organized voice for the poor, working-class, and middle-class, the labor movement, will lose political influence as unions lose the ability to protect workers’ rights.

No one knows yet exactly how the majority of Americans, who support collective bargaining for public sector workers and who view governors like Walker and Kasich negatively, will respond when these bills finally pass and take effect, or when state and federal budgets undermine opportunity for those who already have fewer resources and options.  Will Americans stand together to protest, as so many have done in Madison and Columbus, and if so, will those protests be any more effective in changing policy than what we’ve been seeing?  What will it take to get us to stand up for social and economic justice, not only for teachers and firefighters but for everyone in the working class and the middle class?  To move us to demand the reinstatement of the American dream? How much will we take before we engage fully in the class war?  The time is now.

Sherry Linkon and John Russo, Center for Working-Class Studies

Bending the Cost Curve on Health Care

After a summer of “lying Muslim, socialist Hitler” vitriol, a recent Pew Research Center poll shows that two-thirds of Americans think President Obama is “a strong leader” who is “trustworthy” and is “someone who cares about people like me.”  Though the President does not score as high on general approval or for his “handling of health care reform” (and for good reason), his character numbers are a major asset as we finally get into the substance of what kind of health care we are going to have in this country.

On the substance of reform, the details are devilishly complex not only because several variations are still being debated in Congress, but also because the economics of health care are actually just a little less complicated than brain science.  Fortunately, as public debate moves toward real issues of substance, we are all likely to go rapidly up a learning curve on something that is as morally and economically important to us as individuals as it is for us as a nation.

For example, after this summer’s now thoroughly debunked charge that Obama was proposing “government death panels,” there should be more interest in a study that will be published this December in The American Journal of Public Health.  The study calculates that each year about 45,000 Americans die because they lack health insurance coverage.  As lead author Dr. Andrew Wilper explains:

The uninsured have a higher risk of death when compared to the privately  insured, even after taking into account socioeconomics, health behaviors and           baseline health. We doctors have many new ways to prevent deaths from     hypertension, diabetes and heart disease – but only if patients can get into our        offices and afford their medications.

45,000 of what the study calls “excess deaths” (meaning people died unnecessarily) is a small percentage of all U.S. deaths in a year, but think of it this way:  It’s five times the number of American deaths caused by the terrorist attack on 9-11 and the subsequent wars in Afghanistan and Iraq over the past eight years.  Or, it’s equivalent to four towns the size of Wasilla, Alaska.  Even in the best of systems, accidents happen, mistakes are made, but about 45,000 Americans die needlessly every year because we choose as a nation to make access to health care a lottery game.

Likewise, though eyes glaze over when the President talks about “bending the cost curve on health care,” recent news coverage of the Kaiser Family Foundation’s annual report on health care costs helps illustrate why that bending is so important.   The average annual cost for family coverage more than doubled from about $6,000 to $13,500 in the past ten years, and it’s projected to nearly double to $24,000 in the next ten.  Employers typically pay about 73 percent of the total cost – which will be about $17,500 by 2019, or an increase of $7,700 a year over what they are paying now.  If this were a tax increase, conservative Republicans would call it a Giant Job Killer that will undermine economic growth, but though it appears as an increase in labor costs on employer balance sheets, these increases have exactly the same effect as tax increases would – fewer jobs, slower economic growth, and in this case, fewer employers providing health insurance for their workers.  Likewise, those workers who still have jobs with health insurance in 2019 will see their premiums increase from $3,500 a year now to more than $6,000 a year then.  This is what will happen if nothing is done.

“Bending the cost curve” is not about government budgets.  It’s about reducing the rate of increase of both health insurance and health delivery costs.  By 2019, according to Kaiser, the average worker will be paying at least $500 a month for family coverage, versus about $300 now.  If Obamacare can “bend the cost curve,” it will not mean that average insurance costs will actually go down, but that they would increase to only, say, $400 a month – $100 a month more than now, but a savings of $100 a month from what will happen if nothing is done.

What’s more, under Obamacare tens of millions of families will have some part of their premiums paid by federal government tax credits – 100 percent for families earning less than $29,000 and smaller percentages for families earning as much as $88,000.  When you add it all up, most working-class families should eventually see a real increase in their disposable incomes.

These tax credit subsidies need to be paid for, however, and that’s why the debate on health reform may initiate a sensible discussion about increasing taxes.  As I’ve documented in my last three blogs, progressive think tanks are finally starting to do the math on how to raise taxes on the top 5 percent of taxpayers.   The leading progressive outfit on this topic, Citizens for Tax Justice (CTJ), recently did a Review and Comparison of Six Progressive Options to Finance Health Care Reform.  CTJ provides three “moderate” options, which together would produce about $70 billion a year, more than enough to pay for the health insurance tax credits and all other aspects of Obamacare.  The increased taxes would fall almost exclusively on the top 1 percent of taxpayers whose average annual income is $1.5 million, and it would cost those folks an average of $45,000 a piece.  The next 4 percent from the top, with average incomes of about $280,000, would see their taxes increase by about $700 a year.

If I made $1.5 million a year, I’d be glad to pay an extra $45,000 in taxes just to live in a country where nobody died because they lacked health insurance.  But I’d also probably be economically savvy enough to know that a substantial increase in working-class incomes is good for business and that the President is right when he claims that the future of our economy is riding on bending that cost curve.

Jack Metzgar

Taxing Only the Rich CAN Pay for Everything

It’s time for everybody who wants to say anything about “Obamacare” and taxes to tell the rest of us their income class.  I live in one of the 13.5 million households with a six-figure income between $100,000 and $200,000.  I could afford to give back the annual $2,500 tax cut George Bush gave me in 2001 and 2003, but our current president has pledged that he won’t allow my taxes to increase by a single dime.

I thought this was foolish and unfair when candidate Obama promised it, but now I understand why he put himself in this trick box.  My income class serves as a sort of buffer zone to protect the working class from being attacked with taxes on their health insurance and soda pop.  The only way to ever have a discussion about what to do about our rapidly growing income inequality is to leave us, the vast majority of middle-class professionals, harmless.

In the first week of August, the national punditry declared with something like unanimity that, as the New York Times headlined, “Obama’s Pledge to Tax Only the Rich Can’t Pay for Everything, Analysts Say.”  Unanimity among cable news pundits is bad for business, so their agreement on this is particularly striking.  And this leads me to ask: Do the pundits and the “analysts” they cite really not know the numbers or are they consciously or semi-consciously trying to avoid an increase in their taxes?  It would help to know whether they are “rich” by President Obama’s standard – above $200,000 for individuals, $250,000 for families.

One of the few national pundits who routinely admits he’s “a rich guy” is Bill O’Reilly of Fox News, but with a $10 million-a-year salary (not counting his book sales and speaking fees), he’s more like the super-rich – as is Charlie Gibson of ABC News.  I’m wondering what Bill Bennett, Campbell Brown, David Gergen, Gloria Borger, and all the other talking heads who play such an important role in shaping national debates make these days.

And do they have assistants who actually check out what their “analysts” tell them?  I don’t.  I’m a humanities professor who cannot now and never has been able to do algebra, but I use the Statistical Abstract of the United States in teaching numeracy in undergraduate critical-thinking courses.  Table 470 provides interesting information on Adjusted Gross Income (AGI) and taxes by income-class.  An Internal Revenue Service spreadsheet gives more detailed AGI information on taxpayers in 2007.  AGI is income after certain tax deductions(Wikipedia nicely explains what is and is not included). Using these sources, here’s what I learned in about two hours earlier this week.

Of the 143 million U.S. taxpayers (individuals and households), about 4.5 million have AGIs of more than $200,000 a year.  Though only 3% of all taxpayers, this group claims 32% of all AGI – or $2.8 trillion.  They already pay about $600 billion in federal income tax, or about 22% of their incomes.  If this group paid a graduated average of 35% instead, that would add $400 billion to federal revenues every year.  This would leave them with about $1.8 trillion after taxes, which is roughly what two-thirds of all taxpayers (with AGIs of less than $50,000) have before they pay taxes.

All that is being asked of the rich so far is an increase of $97 billion a year — $43 billion by reverting to the pre-Bush top two marginal tax rates, and $54 billion in surtaxes on incomes over $280,000 to pay for health care.  Both these tax increases directly redistribute income from the rich to the working class.  The $43 billion a year is slated to permanently pay for Obama’s Making-Work-Pay tax credit (introduced but not paid for in the two-year stimulus package).  The $54 billion is mostly slated to help low-income workers pay for health insurance.

More will be needed for long-term government investment in green jobs, infrastructure, and education, all of which (along with health care reform) should lead to stronger, more sustained economic growth, which will do more than any other single thing to bring down government deficits and to increase working-class (and middle-class) incomes.  Taxing the rich can provide all that’s needed for even the most ambitious programs proposed so far. The rich are not an inexhaustible source of government tax revenue, but they have a lot to give before the “middle class” will need to be tapped.

That’s the theory, and it deserves to be debated, but it’s hard to believe that the pundits don’t know that there has been a radical redistribution of income from the working class to the rich over the past quarter century.  So in the interests of “transparency” (a middle-class professional term for fessing up), all commentary on paying for Obamacare should include full disclosure of whether the commentator is rich – possibly as a tagline at the bottom of the screen.

What’s more, since the proposed surtax on the rich is especially easy to figure, rich commentators should tell us how much the surtax will cost them.  For example, as currently proposed, Bill O’Reilly will pay an additional $500,000 in income taxes and Charlie Gibson, an extra $380,000.  It would be good to know how lesser pundits would fare, too, as this might help explain why they keep suggesting that President Obama must break his promise not to increase middle-class taxes.

The President won’t break that promise because he is in a trick box of his own crafting.  And there are many analysts out there – all of whom can do algebra and most of whom make less than $200,000 — who would be glad to help reporters and pundits dig into the facts on income and taxes, if they should ever want to.

Jack Metzgar

Taxing the Rich

We’ve done a lot of hang-wringing on this site about the difficulties of defining the working class.  But as has been pointed out, there’s no clear, agreed-upon definition of “middle class” either, and though there is a clear official definition of “the poor,” it is pretty much a joke (e.g., a family of three earning $17,000 a year does not qualify as “poor”).

Fortunately, however, we now have a semi-official working definition of “the rich.”  During last year’s election campaign, President Obama said he would not increase taxes on the middle class, but only on the rich, which he defined as $200,000 in annual income for individuals and $250,000 for households, or the top 5%.

Though candidate Obama said he’d roll back the Bush tax cuts for the rich, he didn’t specify what other taxes on them he might favor.  But he laid out an ambitious (and  therefore expensive) policy agenda and vowed to pay for it without raising taxes on “the middle class.”   He didn’t demonize “the rich,” or bash them for being greedy and selfish, but he did make clear who he thought should pay for universal health care, a green jobs energy program, tax credits for the working poor, and massive long-term investments in education and physical infrastructure.

The rich, so-defined and so clearly warned, voted 52% to 46% for Obama.  That the rich would vote to tax themselves is not a surprise to the authors of Class War? What Americans Really Think About Economic Inequality.   Their recent survey found that “a majority of the affluent . . . believe that the government should ‘redistribute wealth by heavy taxes on the rich.’” (p. 91) In fact, majorities of Americans in all income groups “agree that economic inequality has widened, that this is worrisome, and that the government should respond.” (p. 14)

Given these facts, it’s a bit of a mystery why suggestions to tax the rich are so widely greeted with outcries against “class warfare.”  It’s also a mystery why Congress and the punditry are currently wringing their hands about how to pay for Obama’s plan for achieving universal health insurance, estimated to cost somewhere between $1 trillion and $1.6 trillion over ten years.  That’s about $100 billion to $160 billion a year.

The redoubtable Citizens for Tax Justice (CTJ) last month released a new menu of possible tax increases, titled Progressive Revenue Options to Fund Health Care Reform.  It has 14 options, and CTJ advocates for six of them.  My favorites are to tax capital gains and dividends the same as “earned income” (aka wages and salaries) and to have these forms of “unearned income” (that’s what they call it!) pay the same Medicare tax that is automatically deducted from the paychecks of all employees.  These two options would produce $113 billion a year in new revenue.

Having income that is “unearned” taxed the same as income that is “earned” seems like basic fairness to me.  But it would increase taxes (slightly) on some non-rich folks and, therefore, CTJ comes up with a more complicated set of tax increases that would fall only on President Obama’s rich and would produce $107 billion in new revenue.

This would produce enough new revenue to fund the Obama version of universal health care if (and only if) legislation includes “the public option” and other money-savers in the Obama plan. But it is not enough to do all the other things Obama and the Congressional Democrats have promised to do.  Fortunately, the Institute for Policy Studies’ (IPS) recent report Reversing the Great Tax Shift: Seven Steps to Finance Our Economic Recovery Fairly offers additional revenue-raisers not included in CTJ’s 14 options:

  • A financial transactions tax of 0.25% on all stock trades = $100 billion
  • Eliminate overseas tax havens = $100 billion
  • A 50% income tax rate for persons earning over $2 million a year = $60 billion
  • A progressive estate tax = $40 billion
  • Eliminate subsidies for executive compensation = $18 billion

IPS is less scrupulous than CTJ in trying to keep all tax increases from falling on anybody below $200,000, but the overwhelming majority of IPS’s seven-step program would fall only on the rich.

To enact all of these possible tax increases would amount to more than $400 billion taken from the rich for clearly stated public purposes.  Some think this would be unfair to the rich, others think it would stifle the economy, and we would be sure to hear lots of denunciations of class warfare.  But in context, it really isn’t that much for the rich – they’d all still be rich.

An enormous amount of income and wealth has been concentrated in the top 5%, and especially in the top 1%, in the past quarter century.  Total personal income in the U.S. is about $12 trillion, and the top 5% now get about $4.3 trillion of that.  If an additional $400 billion were taken from them in taxes to pay for health care, education, energy self-sufficiency, and other vital public necessities, this relatively small group of people would still have about one-third of all income and even more of all wealth.  And they’d have a helluva lot better society to live in.

Jack Metzgar