The Defining Issue: Who Should Get the Tax Cut — The Rich or Everyone Else?

wealthWho deserves a tax cut more: the top 2 percent — whose wages and benefits are higher than ever, and among whose ranks are the CEOs and Wall Street mavens whose antics have sliced jobs and wages and nearly destroyed the American economy — or the rest of us?

Not a bad issue for Democrats to run on this fall, or in 2012.

Republicans are hell bent on demanding an extension of the Bush tax cut for their patrons at the top, or else they’ll pull the plug on tax cuts for the middle class. This is a gift for the Democrats.

But before this can be a defining election issue in the midterms, Democrats have to bring it to a vote. And they’ve got to do it in the next few weeks, not wait until a lame-duck session after Election Day.

Plus, they have to stick together (Ben Nelson, are you hearing me? House blue-dogs, do you read me? Peter Orszag, will you get some sense?)

Not only is this smart politics. It’s smart economics.

The rich spend a far smaller portion of their money than anyone else because, hey, they’re rich. That means continuing the Bush tax cut for them wouldn’t stimulate much demand or create many jobs.

But it would blow a giant hole in the budget — $36 billion next year, $700 billion over ten years. Millionaire households would get a windfall of $31 billion next year alone.

And the Republican charge that restoring the Clinton tax rates for the rich would hurt the economy — because it would reduce the “incentives” of the rich (including the richest small business owners) to create jobs — is ludicrous.

Under Bill Clinton and his tax rates, the economy roared. It created 22 million jobs.

By contrast, during George Bush’s 8 years, commencing with his big 2001 tax cut, the economy created only 8 million jobs. And as the new Census data show, nothing trickled down. In fact, the middle class families did far worse after the Bush tax cut. Between 2001 and 2007 — even before we were plunged into the Great Recession — the median wage dropped.

It’s an issue that could also be used to expose the giant chasm that’s opened between the rich and everyone else — aided and abetted by Republican policies. As I’ve noted before, in the late 1970s, the top 1 percent got 9 percent of total national income. By 2007, the top 1 percent got almost a quarter of total national income.

These figures don’t even count in taxes. The $1.3 trillion Bush tax cut of 2001 was a huge windfall for people earning over $500,000 a year. They got about 40 percent of its benefits. The Bush tax cut of 2003 was even better for high rollers. Those with net incomes of about $1 million got an average tax cut of $90,000 a year. Yet taxes on the typical middle-income family dropped just $217. Many lower-income families, who still paid payroll taxes, got nothing back at all.

And, again, nothing trickled down.

As I’ve emphasized, the U.S. economy has suffered mightily from the middle class’s lack of purchasing power, while most of the economic gains have gone to the top. (The crisis was masked for years by women moving into paid work, everyone working longer hours, and, more recently, the middle class going into deep debt — but all those coping mechanisms are now exhausted.) The great challenge ahead is to widen the circle of prosperity so the middle class once again has the capacity to keep the economy going.

In other words, this is the right issue. It’s the right time. It allows Democrats to explain what the Bush tax cuts really did, why supply-side economic is bogus, and the economic challenge ahead.

Even if Democrats feel they have to respond to the Republican charge that taxes shouldn’t be raised on anyone when the employment rate is 9.6 percent, they have a powerful fallback: Extend the Bush tax cuts for everyone through 2011, then end them for the rich while making them permanent for the middle class.

Get it, Democrats? Please don’t blow it this time.

Robert Reich

This article first appeared on Robert Reich’s Blog. Republished with permission

Comments

  1. Jay Levenberg,Esq. says

    Frankly, almost all Democrats voted against all these tax cuts in the first place. It is almost impossible to argue to keep them for some and not for all from a political point of view. Worse, polls all over show the Republicans are trusted much more than Democrats on tax issues. Therefore, if we are left to argue over tax cuts, the Republicans will have a distinct advantage. We would do much better to be aguing over other issues where the polls show Democrats leading on the issues. You don’t get into a fight with someone who has a stronger hand. You hit them over the head where they are weak. Attempting to explain a complicated argument to the public is a waste of time.

  2. Fritz Dahmus says

    Most financial experts will tell you that keeping the Bush tax cuts won’t do as much good as everyone says, but it is a nice start. They say the real benefit comes in keeping/decreasing the capital gains tax low. This is money that will easily move overseas if it doesn’t like the U.S. business environment and is the stimulus for new business development, jobs, etc….

    DarrelB, you are correct….you can’t trust a leftist with economic numbers. This article is full of head-scratching statements. The biggest head-scratcher is the picture of the women in the bikini….what has that to do with anything. Dare we call that sexist!!

  3. DarrelB says

    “Yet taxes on the typical middle-income family dropped just $217. Many lower-income families, who still paid payroll taxes, got nothing back at all.”

    Bob, if the middle-income family only got $217 in “tax cuts” why not just let all the rates increase? Where does this number come from? It is a ridiculous number. The Child Care Credit alone is $1,000. Man, never trust a Leftist with numbers.

    Also, these middle-income families you cite, “who still paid payroll taxes”. Poor darlings. I thought payroll taxes paid “social insurance”. I thought the idea was everybody pays in and everybody draws out. Are you suggesting that middle-income families, who already pay virtually no income taxes, not pay social security and Medicare taxes either? Sounds to me like you are asking 5% to 10% of the people to pull the wagon and everyone else jump in the wagon.

  4. Charlie Martin says

    Bob, baby, you’re missing a couple things here.

    First, you are using the usual trick of evaluating the tax cut in dollars, not percentage, when it suits you.

    Second, and more important, you’re phrasing this as EITHER the rich get a tax “cut” OR everyone else does. Since this isn’t an option anyone has suggested, you’re starting by positing a straw man. The offered choices are “EVERYONE gets a ‘tax cut’ or ALOMST everyone gets a ‘tax cut.”

    Of course, there’s a third point here, which is that NOBODY is getting a tax *cut*: we’re really arguing about who gets a massive tax INCREASE.

  5. Brian Knowles says

    This is so easy. The taxes should be refunded to those who paid them, not re-distributed to the poor who votes you want to buy.

    This is an example, a small piece of the egregious criminality in government, that’s driving the Tea Party.

    bk

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