While raising the debt ceiling has generated an untoward amount of conflict and anxiety, the really tough fight still lies ahead of our country -- how to enact a program that reduces deficits and ultimately the overwhelming national debt. Any effort in this direction places the question of tax increases front and center. Warren Buffet, America's wealthiest person, has so often stated his belief that taxes should be raised for the richest Americans that it has become a commonplace. But some were surprised, including the conservative anchors of CNBC's Squawk Box, to hear a Home Depot founder Ken Langone, who has all the right conservative credentials, support raising taxes and even suggest that the distinction between taxes on capital and on earnings should be revisited. While most of the wealthy people have not been public about their views, I can report anecdotally that every affluent person I have asked about the subject has agreed that an increase in taxes is necessary as part of a program to reduce our nation's deficit and mounting debt. This position by the wealthy is not some altruistic impulse but makes practical sense for them.
To start, it is clear that the continued pattern of increasing our debt has helped erode the value of the dollar and eventually will reduce our nation's credit rating and result in a devaluation of our debt instruments. The failure of our political leaders to come to grips with a viable solution to significantly reduce deficit spending has already raised questions about the ability of our democracy to take the necessary difficult steps to reduce our reliance on debt. (see my Huffington Post blog: "Jobs Deficits and the Coming Test of America's Democracy") This failure is taking its toll on stock and bond prices and continued inaction will further damage securities values. The reduction in those values impairs the wealth of rich Americans far more than any increase in taxes. "The rich are different from you and me" famously said F. Scott Fitzgerald.
One difference is that the ratio of wealth to income of the rich is far greater than for average Americans. Thus, even a small loss in the value of a wealthy person's portfolio is far more consequential than a similar percentage increase in taxes on their income. For example a five percent loss on each ten million dollars in assets amounts to $500,000 while a five percent tax increase on each $1,000,000 of income is only $50,000. Thus, it makes sense for the wealthy to support an increase in taxes if that helps significantly to reduce government deficit spending and borrowing which threatens the values of their stock and bond holdings. And the rich know full well that there is no way to reduce the deficits and the debt without increasing revenues by raising taxes.
A simple look at the US budget tells the story. The bulk of spending falls into three categories that theoretically are within the government's power to control: social security, which has not itself caused any shortfall, health care and military expenditures. The fourth large cost -- interest on the national debt -- cannot be controlled. After these items, there is just not enough money in the rest of the budget -- even if every single item were cut to the bone -to allow the nation substantially to reduce the debt burden. Moreover, the only way to induce the American public to agree to the painful reductions required in the budget is too show that the pain is being shared by the affluent among us.
Wealthy Americans also understand that the richest of us have benefited enormously in the extent of wealth accumulation compared to the rest of the nation. The concentration of wealth in the hands of a small percentage of the population has been increasing and that trend has accelerated since the Bush tax cuts to the point where the top one percent of the population now has double the net worth of the bottom 80 percent. As the larger population feels the pain of continuing unemployment and the loss of what little wealth they have in their homes, the growing wealth gap can result in a challenge to the capitalistic system that allows this differential to continue. Especially is this true as the broader population feels increasing pain from the reduction in programs like Medicare, Medicaid, and food stamps that helps assuage some of the economic distress.
More than most, wealthy Americans also recognize the illogical and specious nature of some of the arguments presented against raising their taxes. They know, for example, that raising their taxes will not in the slightest reduce their incentives to keep on working and producing wealth. In the 1950's and into the 60's when the marginal tax rate reached over 90 percent, people did not stop working. On the contrary, they worked harder to keep more of their earnings. The wealthy also know that increasing taxes will not reduce investments in worthy projects. There is no shortage of money in the hands of the wealthy and in the coffers of the banks and other lenders and investors. The problem for them today is to find deserving investments in an economy that is declining because of the enormous deleveraging that is taking place after the burst of the huge bubble and the joblessness that is limiting consumer spending. They know, as well, that rather than reducing confidence, an appropriate increase in taxes accompanied by reduced expenditures that address the debt issue will increase confidence in the country and its political system.
The ultimate irony is that while the wealthy are prepared to pay higher taxes because it best serves their interests, the Tea Party ideologues are in the process of destroying the wealth by refusing to accede to any program that raises taxes on the rich in order to reduce the deficits and debt. Their intransigence threatens the wealth of America. It is time for the rich to get off the sidelines and make clear to their representatives in government and to the media that the Tea Party and their converts are acting against their true interests.
Mr. Lifton, a business man and political activist is writing a book entitled Life's Lessons and Stories from a Member of the "Greatest Generation.'