A Ray of Hope

          On April 21, Ed Schultz had as a guest on his show Michael Steele, the former Republican National Committee (RNC) Chairman.  The hot issues for discussion were tax cuts for the rich and budget cuts for everyone else.  Steele of course pressed the Republican line that tax cuts for the rich (as part of a “lower taxes for everyone” policy) will pave the road to recovery.  In the first segment of that interview, Schultz asked Steele if he believed tax cuts for the rich would bring about more investment, and Steele said that he did.  Tellingly, however, he retreated from the Reaganomics line (as all Reaganomics protagonists are forced to do) when asked: “Where are the jobs?”  His response, which reflects economic reality, is that capitalists won’t invest until the economic conditions are right. 

          Unfortunately, there is never enough time on a show like the Ed Show to examine the premises of the “supply-side” argument and expose its illogical foundation.  We have shown how reducing the top rate from 70% to 35% has, over time, created much greater inequality in incomes and wealth (and federal debt) than existed when the process started in 1980.  The economic decline since then, all by itself, defeats the Reaganomics argument that people and society in general will be better off if the top tax rate is reduced. 

          But the point that I never see discussed is how the argument can even make superficial sense:  Is Steele suggesting, for example, that rich capitalists are overtaxed right now, and that somehow they need a tax break in order to be able to increase their investment in America?  As of 2007, the top 1% held 33.8% of all wealth (over $22 trillion), and more than half of all financial wealth.  Their major corporations are engaged in multi-billion mergers and acquisitions every day, all over the world (General Electric is a great example).  Is he suggesting, in these circumstances, that we don’t have more investment in jobs and growth in America because the wealthy just can’t afford to do more without another cut in the highest tax rate?  

          Put another way, if they won’t invest unless the conditions for making a profit are right, which is what Steele admits constrains them now, what would another reduction in the tax rate for the very wealthy do to improve those conditions?  And if we pay for their tax break with budget cuts that reduce federal spending by $38 billion on programs for ordinary people, thereby reducing employment and depressing the economy rather than stimulating it, doesn’t that just make private investment in America less attractive?

          With a moment’s reflection on questions like these, I submit, we begin to see the “supply-side” argument crumble into dust.  We begin to see that, as Robert Reich argued on the Ed show on April 18, cutting spending and reducing taxes on the rich is just “a net transfer of wealth” to the richest Americans.   

          In our discussion of taxation, we have seen that within top 1%, and increasingly within the top .1% and the top .01%, household incomes are taxed at the capital gains rate, 15%.  Thus, in 2007, the top 400 households paid an effective rate of 17% despite being taxed at the marginal rate of 35%.  Only people in the $9,000 – $34,000 range, which is below, at, or near the poverty level  in the United States (about $22,000), get to pay taxes at such a low rate.   These two groups – the incredibly rich and the poverty-level poor – pay the lowest effective household tax rates in America.  People who pay most or all of their taxes on ordinary incomes (including everyone else with incomes of $200,000 or less) pay at a higher rate.          

          A couple of points: First, any thought that we have a progressive tax system in this country must be immediately jettisoned as soon as we realize that the super rich pay taxes at the same rate as people living in poverty.   Second, reducing the top tax rate affects neither the super rich nor the very poor; it merely reduces tax revenues by cutting down on the amount of taxes paid by the lower-level rich, those making in the area of $345,000 now, and anyone above the 25% bracket today. 

           Flattening the tax structure like this, reducing tax revenues from a major source, just seems like a bad idea.  I really need an explanation of how this does anything but make the impossible job of balancing budgets and reducing debt still more impossible (if that’s possible)!  Yet, that is what the National Commission on Fiscal Responsibility and Reform recommended, in its December 2010 “Moment of Truth”:  They said the top tax rate should come down to 23-29% and not exceed 29%.  Are they crazy?

          The last time we had a debt problem like this, shortly after WW II, we taxed the highest incomes at 90% for nearly two decades.  This is a “Moment of Denial,” sponsored, I am certain, by the power of great wealth.  Sadly, Michael Steele can appear on the Ed Show and talk about “trickle down” and such commission proposals as if they somehow make sense, and there is little we can do: This nonsense still rules the day. 

          But on this occasion, however, I saw a glimmer of hope!  Ed invited two public employees, a retired policeman from Columbus, Ohio and a fire fighter from Orlando, Florida on his show, both of whom recently left the Republican party.  Here are the videos of part one and part two of the discussion these men had with Michael Steele.  

          These videos not only show a Republican ideological spear carrier retreating when confronted by the reality of his party’s war against the middle class, they also show that when people find out how Republicans they elected have betrayed them, they abandon the Republican Party.  These men know they are not being treated fairlyand they are now fully aware that they are under attack by the Republican Party. 

             These men also have a growing sense that they are not being taxed fairly, compared to the rich.  Of course they are not being taxed fairly, and the inequity keeps getting worse.  Still, most people in their situation are not yet aware that taxing the rich, and to a much greater degree than is being talked about today, is not only about fairness – it’s about survival.  Hopefully that will come.  For now, it’s great to see so many people wake up to the war against the middle class, as these men have, and start to fight back. 

JMH – 4/24/11

This entry was posted in Labor & Unions, Reaganomics, Taxation. Bookmark the permalink.

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