Apart from its extraordinary cost and regressive tilt, the tax deal negotiated between the president and the Republicans has another fatal flaw.
It confirms the Republican worldview.
Americans want to know what happened to the economy and how to fix it. At least Republicans have a story -- the same one they've been flogging for thirty years. The bad economy is big government's fault and the solution is to shrink government.
Here's the real story. For three decades, an increasing share of the benefits of economic growth have gone to the top 1 percent. Thirty years ago, the top got 9 percent of total income. Now they take in almost a quarter. Meanwhile, the earnings of the typical worker have barely budged.
The vast middle class no longer has the purchasing power to keep the economy going. (The rich spend a much lower portion of their incomes.) The crisis was averted before now only because middle-class families found ways to keep spending more than they took in -- by women going into paid work, by working longer hours, and finally by using their homes as collateral to borrow. But when the housing bubble burst, the game was up.
The solution is to reorganize the economy so the benefits of growth are more widely shared. Exempt the first $20,000 of income from payroll taxes, and apply payroll taxes to incomes over $250,000. Extend Medicare to all. Extend the Earned Income Tax Credit all the way up through families earning $50,000. Make higher education free to families that now can't afford it. Rehire teachers. Repair and rebuild our infrastructure. Create a new WPA to put the unemployed back to work.
Pay for this by raising marginal income taxes on millionaires (under Eisenhower, the highest marginal rate was 91 percent, and the economy flourished). A millionaire marginal tax of 70 percent would eliminate the nation's future budget deficit. In addition, impose a small tax on all financial transactions (even a tiny one -- one half of one percent -- would bring in $200 billion a year, enough to rehire every teacher who's been laid off as well as provide universal preschool for all toddlers). Promote unions for low-wage workers.
But here's the obstacle. As income and wealth have risen to the top, so has political power. Money is being used to bribe politicians and fill the airwaves with misleading ads that block all of this.
The midterm elections offered dramatic evidence. NBC news reported shortly after Election Day, for example, that Crossroads GPS, one of the biggest Republican secret-money organizations, got "a substantial portion" of its loot from a group of extremely wealthy Wall Street hedge fund and private equity managers. Why would they sink so much money into the midterms? Because they've been so strongly opposed to a proposal by congressional Democrats to treat the earnings of hedge fund and private equity managers as ordinary income rather than capital gains (subject to only a 15 percent rate).
In other words, the problem isn't big government. It's power and privilege at the top.
So another part of the solution is to limit the impact of big money on politics. This requires, for example, publicly-financed campaigns, disclosure of all sources of political spending, and resurrection of the fairness doctrine for broadcasters.
It's the same power and privilege that got the Bush tax cuts in the first place, and claimed the lion's share of its benefits. The same power and privilege that got the estate tax phased out.
Get it? By agreeing to another round of massive tax cuts for the wealthy, the president confirms the Republican story. Cutting taxes on the rich while freezing discretionary spending (which he's also agreed to do) affirms that the underlying problem is big government, and the solution is to shrink government and expect the extra wealth at the top to trickle down to everyone else.
Obama's new tax compromise is not only bad economics; it's also disastrous from the standpoint of educating the public about what has happened and what needs to happen in the future. It reinforces the Republican story and makes mincemeat out of the truthful one Democrats should be telling.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Jacob S. Hacker and Paul Pierson: America's Hostage Crisis: Day 3,500 -- And Counting
In Obama Tax Plan, Boost for Job Creation - David Leonhardt ...
This is brilliant, and compelling, Mr. Reich. Thanks for stating it so clearly and so forcefully.
Now, it's up to all of us to post this, forward this link, talk about it, and help people understand it. It's rarely ever been spelled out so well.
Most Americans will pay in the range of 300K total in taxes for their entire working life. That wouldn't pay the salaries of even 10 government workers for a single year. All of the money we put into taxes over the course of a lifetime wouldn't cover the cost of building one school, one library, or one museum, or even a wing on one hospital. All of the money we put into taxes over the course of a lifetime wouldn't cover the costs of maintaining a national park for more than a few days. We get access to that park for a lifetime.
The Internet itself was created by government. Our 300K wouldn't cover a day's expense in the R and D process that led to its invention.
On top of that, our taxes pay for roads, bridges, EMT, 911, Fire fighters, Coast Guard, Police, etc. etc.
I'm always amazed at the ignorance when people say it's taking their hard-earned money away from them to give to those who don't deserve it. What complete and utter nonsense.
While the government certainly could do better choosing how to spend money, we still get a tremendous deal. It's a bargain unlike anything we ever buy in the private sector.
Fanned and Faved
Bush Tax Cuts a Disaster – Says the third ranking Republican in the House:
http://crooksandliars.com/jon-perr/10-epic-failures-of-the-bush-tax-cuts
Doesn't sound like China...? Where the government controls what us stupid little can hear or watch on government run TV, or radio... If , I don't like what I am listens to... I am smart enough to turn it off, or to something else... I don't need the FCC doing that for me...
December, 21, 2010, the FCC is voting on controling the internet... I was born in a FREE Country, but it;s starting look more and more like China, or Russia
Uh, no, it doesn't sound anything like China.
So - what is the typical tea bagger response? " It's not a revenue problem, it's a spending problem. We need to cut our spending - not be raising taxes."
Talk about disjointed from reality. Where on earth do you think you can cut, from a $3.5 trillion budget, $1.2 trillion in current deficits as well as $1 trillion in deficits represented by this "tax deal" while simultaneously reducing revenues.
It's the old adage of "when you've dug yourself into a hole - the first thing to do is STOP DIGGING." The baggers have already sold out and joined the republicans in further excavation of our economic hole - giving up their tiny shovels - they have brought in the back hoes to insure the hole is good and deep - and, of course, will be blamed on the spending of the democrats.
Taxation, as perceived by our founders, was supposed to be a means of providing funding for the essential functions of the Federal Government.
It has been changed, by well intentioned progressives, into a system of wealth redistribution, and therein lies the problem
When 'wealth' is redistributed by a government, the government always distributes more than it creates. Why? Because the government does not create wealth, the private sector does. This redistribution always results in higher taxation which is destructive to wealth creation.
So the government ends up borrowing the difference. This creates debt, with corresponding interest payments on that debt. As the debt grows, so does the interest payment, in an ever expanding, vicious spiral.
If redistributive ideologies (such as so called "Social Justice), were economically beneficial, the USSR would not have collapsed, and Cubans wouldn't be living in glorious Utopian poverty, and the Socialistic Democracies of Europe would not be collapsing.
It's time to get back to our founder's intent, and change taxation back from a system of wealth redistribution, to a system that is used ONLY to support essential government functions.
"Taxes TAKE from those that earn and pay them, they do not give anything to anyone except to those non producers that don't pay them yet receive free checks from the government"
I take it this is in reference to "welfare". Welfare represents less than $200 billion of a $3.5 trillion budget (and, by the way, includes such welfare items as Veterans Health Care - which I'm sure you'd like to cut). Okay - get rid of it all - you still have a deficit of over $1 trillion. Truth is we pay almost 5 times as much welfare to corporations and farmers (subsidies) in the form of wealthfare.
But, the true redistribution of wealth is not from the government. From 1979 - 2006, the average income of the richest 0.1% of Americans rose a staggering 364%, nearly 25 times more than the growth of the median household income. 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans. Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
Meanwhile: Between 2001 and 2007, the real income of the median working-age household decreased by 1.9%, a loss of $1,107, despite productivity increasing by 18.5% over that time. Republicans are the party of "redistribution of wealth" (from the middle class to the wealthy).
Do your homework, learn how things actually work, stop promulgating these misconceptions that lead to erroneous conclusions. That is the road to ruin.
Real Democrats know that prosperity takes place when the vast majority of us have more purchasing power.
The Republican world is to make it possible for a few at the top to earn and keep as much money as possible and let it trickle down. It doesn't.
Obama talks about the Democratic world but is help captive by the Republican world. He lost in the mid-term elections because the people did not understand the real difference between the two worlds. He can never win unless he begins now to stand up for these major differences.