President Obama is currently confronting mostly Republican opponents over whether to extend the Bush tax cuts to the richest 1 percent of taxpayers. Between 1979 and 2007, the richest 1 percent received three-fifths of all the income gains in the country. Most of this went to the richest 10th of that 1 percent, people with an average income of $5.6 million (including capital gains).
So this is a no-brainer in terms of fairness: Allowing the Bush tax cuts to expire for the richest 1 percent of Americans would reverse some of the vast upward redistribution of income that has taken place since the late 1970s. However a couple of caveats are in order. First, restoring these taxes for the rich and the super-rich would not by itself do anything for the weak economy, nor for the 23 million people who are unemployed, involuntarily working part time, or have given up looking for work. In fact, by itself it would have a negative impact on the economy and employment in the immediate future if the federal government didn't use the extra revenue to increase spending.
However, in the current political climate there is much political pressure to reduce the budget deficit, especially over the next few years. So taking back these tax cuts could help us avoid other budget cuts that will hurt people. Or, alternatively, it could open more space for the federal government to engage in stimulus spending -- which is what we need to move closer to full employment.
Of course, the federal government should be engaged in stimulus spending right now, but it is being held back by superstitious beliefs about the public debt. In reality, we don't have a federal debt problem: Net interest payments on the federal debt are less than 1.4 percent of our national income, which is about as low as it has been for the past 65 years. But that is not well known, and right-wing forces have been aggressive and well-financed in their attacks on federal spending. So if revenue is going to be raised, it should come from the people who have vastly increased their too-big share of the economic pie in recent decades.
The other caveat is that we can't reverse most of the upward redistribution of income through the tax code. As my colleague Dean Baker has persuasively argued, most of this redistribution has taken place through the rewriting of rules so that markets deliver more to the rich and less to everyone else. A stellar example of this is the current strike by Caterpillar workers in Joliet, Ill. The big manufacturer of earth-moving equipment had record profits of $4.5 billion last year, and $1.6 billion in the first quarter of this year. Yet it is trying to force its workers to freeze their already reduced wages, and pensions for six years and pay more for their health insurance. The company has hired replacement workers and promises to shove these terms down its workers' throats.
This kind of greed-based assault on ordinary workers would not have happened in the pre-Reagan era, before changes in labor law and practices made it much easier. It is these kinds of institutional changes that will have to be reversed if we are ever going to return to a society in which the majority of people can aspire to a middle-class existence. Reforms such as the Employee Free Choice Act, which would restore the right of workers to join a union, will have to become law and be enforced. Workers -- not just in manufacturing but throughout the economy -- will have to have some bargaining power. Otherwise, the ugly and increasing concentration of income, wealth, power and political corruption that has transformed this nation over the past three decades will continue.
This article was distributed by McClatchy Tribune Information Services on July 26, 2012 and published by various newspapers.