Bill Gates and Warren Buffett recently traveled the US convincing fellow rich Americans to give more of their money to charity instead of spoiling their grandkids with it and subsequently pitched the same message to newly minted millionaires in China.
On the other hand, maybe they need to realize that their big bucks would work more efficiently in the form of higher taxes.
Ever since Ronald Reagan's regime Americans seem to march in lockstep to the mantra that taxes are evil; 28 of 31 economists polled by CNN opposed raising them on the wealthiest Americans. But maybe, just maybe our federal and personal deficits have just as much to do with tax cuts and breaks than runaway spending. Even Gates now concedes that the state of Washington wouldn't be so broke if he and his fellow residents paid income taxes -- Washington is one of seven states that don't levy any. What's more, as Buffett has pointed out, his tax rate is around the same as the receptionist in his office because part of his seven-figure income is taxed at the puny capital gains rate of 15%.
Even if our current top tax bracket of 35% is nudged up to 39.6% when the Bush tax cuts expire, it would still be lower than any of the 17 countries that make up what used to be known as Western Europe, with the exception of Luxembourg. Not only do eight of the countries have top rates exceeding 50%, these rates are on top of the value-added taxes that Europeans shell out on purchased items that can be as high as 25%. What's more, we'd be collecting even more tax revenue than we did when top rates were higher because "rich" has been redefined upward: the typical income for the top 1/10th of 1 percent of Americans is seven times what it was in 1974 when the top rate was 70%: $7.1 million versus around $1 million, according to the must-read book "Winner-Take-All-Politics," by Jacob Hacker and Paul Pierson.
And it's not like I'm suggesting that higher taxes would subsidize European-style 35-hour workweeks or early retirement but rather reduce financial stress by lowering the cost of college and home ownership.
Here's how innumerate we are. In a recent blog post, CNN's Jack Cafferty asked readers earning over $250,000 if they'd consider moving to a low-tax country, citing a letter to the Wall Street Journal from a California real estate executive who said that although he makes more than $250,000 he doesn't consider himself wealthy because he's still paying off college loans for his kids.
On the other hand, if we raised the top tax rate to the pre-Reagan rate of 70%, applied to households with incomes of $373,651 not only would he be paying less for his kids' college education but those in lower tax brackets would pay little or nothing. As I pointed out in my book, "America, Welcome to the Poorhouse," the increasing cost of a sheepskin has been primarily driven by shrinking federal subsidies, beginning when Reagan administration when halved the portion of the federal budget spent on education from 12 % to 6%. While federal grants accounted for 70 percent of the cost of a degree 30 years ago, most households now need loans to handle most of the cost. While admittedly too many parents of college-bound kids incorrectly equate overpriced colleges with high quality, we still need to aim to relieve new graduates of loan burdens.
What's more, higher tax rates would have very likely reduced the portion of this guy's income that goes toward paying his mortgage in overpriced California by lowering prices. The increase in U.S. housing costs were a direct result of Reagan's slashing of the housing budget from $32 billion to less than $8 billion. As a result, folks who would have qualified for subsidized low-income housing were forced to buy regular housing, raising the prices for everybody else.
Another federal program that would lower housing costs is high-speed rail connecting affordable neighborhoods to workplaces -- especially needed in The Golden State, with the second and third most expensive metro areas in the country: San Jose and San Francisco. Unfortunately, even now, as President Obama is pushing for high-speed rail, the freight rail lobby is pushing against it because it would involve "too much regulation." Right.
We need these tax hikes to afford these expenditures because an affordable college education isn't simply a ticket to a better paycheck but necessary for pretty much ANY paycheck in this increasingly global economy. And making homes affordable is vital for most Americans who need home equity to supplement their meager 401(k) balances. Unfortunately given the gridlock on Capitol Hill along with the phony baloney Tea Party anti-tax rhetoric we're unlikely to get the dialogue we need to pursue these remedies.