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

This entry was posted in Jack Metzgar, The Working Class and the Economy, Working-class politics and tagged , , . Bookmark the permalink.

3 Responses to Taxing the Rich

  1. itscorr says:

    Alas, none of the above would really work. The rich control the mechanisms of compensation and they would manipulate them to reduce their tax burden. For example, if you have a 50% tax rate on incomes above $2 million, well then the rich will make sure that they have no income above that. How? Easy, move taxable income assets offshore. Pay themselves more benefits that don’t count as income. Defer compensation. For example, I know several offshore engineers who work international jobs and make $500,000 per year. They live in Belize even though they are Americans to avoid taxes. No, these schemes will not work. They will shift income.

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  2. Pingback: Taxing the Rich « Working-Class Perspectives « Taxes Income

  3. Pingback: A1 Earning » Taxing the Rich « Working-Class Perspectives

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