by Robert B. Reich

Nobody likes taxes, but shouldn't the wealthy pay their fair share?

That's a key question underlying the budget fight now moving into high gear in Washington. The plan pushed by House budget chair Paul Ryan and his Republican colleagues calls for massive spending cuts along with additional tax breaks for the wealthy. The president says he's just as serious about deficit reduction, but instead of cutting as much spending, he wants to raise taxes on the wealthy.

The president is right. In fact, his proposals for raising taxes on the super-rich don't go nearly far enough.

Over the past three decades the distribution of income in America has become wildly out of whack. Despite an economy that's twice as large as it was 30 years ago, the bottom 90 percent of Americans remain stuck in the mud. If they're employed, they're earning on average only about $280 more a year than 30 years ago, adjusted for inflation. That's less than a 1 percent gain over more than a third of a century.

Yet even as their share of the nation's total income has withered, the tax burden on average workers has grown. They're shelling out a far bigger chunk of incomes in payroll taxes, sales taxes and property taxes than 30 years ago.

It's just the opposite for super-rich.

Over the last three decades the richest 1 percent's share of national income has doubled (from 10 percent in 1981 to well over 20 percent now). The share going to the richest one-tenth of one percent has tripled.

And they're doing better than ever.

The median pay for top executives at 200 major companies was $9.6 million last year, topping pre-recession highs. Total compensation on Wall Street hit a record $135 billion. The heads of the top 25 hedge funds made almost a billion dollars each.

Yet, remarkably, tax rates on the very rich have plummeted.

From the 1940s until 1980, the top income-tax rate on the highest earners in America was at least 70 percent. In the 1950s, it was 91 percent. Now it's 35 percent. Even if you include deductions and credits, the rich are now paying a far lower share of their incomes in taxes than at any time since World War II.

The estate tax (which only hits the top 2 percent) has also been slashed. In 2000 it was 55 percent and kicked in after $1 million.

Today it's 35 percent and kicks in at $5 million. Capital gains -- comprising most of the income of the super-rich -- were taxed at 35 percent in the late 1980s. Now they're taxed at 15 percent.

If the very rich were taxed at the same rates they were a half-century ago they'd pay a whopping $350 billion more this year alone. That's trillions of dollars over the next decade -- enough to dramatically reduce the nation's long-term budget deficit.

Yes, the rich will find ways to avoid paying more taxes courtesy of clever accountants and tax attorneys. But this has always been the case regardless of where the tax rate is set. That's why the government should aim high. (During the 1950s, when the top rate was 91 percent, the rich exploited loopholes and deductions that as a practical matter reduced the effective top rate 50 percent to 60 percent -- still substantial by today's standards.)

And yes, higher taxes will prompt some to move their money to the Cayman Islands and other tax shelters outside the U.S. But paying taxes is a central obligation of citizenship, and those who take their money abroad in an effort to avoid paying American taxes should lose their American citizenship.

The real challenge will be to overcome the political clout of the super-rich, many of whom make generous campaign donations to candidates who promise to lower their taxes and fund ads against those who want to raise them.

The president will have to take his case to the American people directly.

This shouldn't be hard. Most Americans know trickle-down economics is a lie because almost nothing has trickled down. And they sense the dice are loaded because they're paying a steadily larger share of their incomes in taxes while the multimillionaires and billionaires are getting away with paying less and less.

 

Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of the book Aftershock: The Next Economy and America's Future.

 

Why We Must Raise Taxes on the Rich