Why the Tax Deal Confirms the Republican Worldview

mcconnellApart 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 30 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 pre-school 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, publically-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.

Robert ReichGet 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 reenforces the Republican story and makes mincemeat out of the truthful one Democrats should be telling.

Robert Reich

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


  1. says

    Well said! The first Annette said Obama ‘may be intentionally facilitating the destruction of America’s middle class’, there is no maybe about it, he is destroying what little is left. Candidate Obama said all the right things but President Obama continually acts to ensure a further decline of wealth for the People. Over the past few decades, We the People have become economic slaves to those who control government/main-stream media. If the people were aware of what has truly happened, they would take charge of what needs to happen in the future… if we are to have a future. The power-elite may control the main-stream media but people are angry and hurt enough to listen to one another right now. I think a mouse could defeat the elephant and the donkey so long as he had no leash attached.

    I was an Obama supporter until this summer. As a Gulf resident I was shocked into the light when I realized he allowed toxins to be sprayed on the Gulf and its people (fyi, Corexit says, “Do not contaminate surface water” and its main ingredient is poison). And then Obama encouraged the world to eat oil/dispersant soaked seafood. The facts show this is correct but the same corporate-owned-main-stream media ignore the Gulf’s people and sickness. People are angry about the tax-cut extensions and rightfully so, but something is horribly wrong with our leader when he wants poor sick people to be the norm. If anyone could support him after knowing all the facts, then they are the ones holding his leash.

  2. Ted Radamaker says

    Robert Reich for President of the United States! How can you read this article without having such thoughts? Rabbi Michael Lerner has called for candidates to challenge Obama in the 2012 primary, spelling out the progressive criteria needed:


    Reich seems to meet all of the requirements. I can’t think of a better candidate. Can you? Let’s get something going here!

  3. Annette says

    Brilliant analysis, Mr. Reich, with a clear synopsis of solutions and the path we should be on to remedy the crisis our nation faces.

    But we have to consider that President Obama may not be just a poor negotiator or a weak president. He may be intentionally facilitating the destruction of America’s middle class. Bush II might have been a puppet of the Saudis, propping up oil prices for OPEC by removing Saddam Hussein, the thorn in their side who undermined their illegal price manipulations of oil. In the same vein, Obama could certainly have been groomed for the US presidency in order to reinforce and increase wealth redistribution from the working and middle classes to the super rich.

    The US has a powerful middle class that has given us protections like minimum pay, child labor laws, workers comp, workplace protections, environmental protections, social security, etc. It’s entirely possible that multinationals that routinely take advantage of workers in third world nations have been planning and working for years to rid our country of these public protections. Obama’s Universal Health Insurance in lieu of UH Care indicates he may be complicit in their plan. Obama says one thing and does the opposite: campaigning against perpetual war in the mideast, then increasing funding and troops, declaring he won’t sign the healthcare bill without the public option but secretly dealing it away in meetings with the insurance and medical industries, and now working to extend the Bush tax cuts for the wealthiest Americans at the expense of all of us who will have to pay the bill down the road.

    At some point, we need to realize that Obama might believe a complete concentration of wealth and power would be good for our country, or good for the world, or maybe just good for Obama and his own future. If he has completely fooled us and his goal is to cement in wealth redistribution from the middle and working classes to the rich, we need to fight him as hard as we would a Republican president. It’s much harder because we put him in place and we want to trust him. But if we misjudged Obama, it’s our duty to stop him and Congress before they completely destroy the future of this wonderful experiment in democracy that we call the USA.

    Does anyone really believe that he had to compromise? You don’t think there would be an uprising if the Republicans blocked the child tax credit, earned income tax credit and unemployment? We didn’t need our president to compromise, we needed the Republicans (and Democrats) to just TRY to take away the measly tax credits America’s workers receive. The American public is like a frog in a slowly heating pot of water. Dropped into boiling water, a frog leaps out. But if you slowly boil it, it’ll sit there until it’s dead. Obama’s compromise simply leaves us in the heating pot a little longer. What we need is a president who’ll stand up for us and lead us so we can stand up for ourselves!

    Our fragile democratic republic doesn’t exist for the rich, it exists because little people like us demanded it, created it, paid for it, and fought to keep it alive for 200 years. We OWN this government. Let’s start acting like it and create a new political party to fight the Democrats and Republicans that are stealing from the middle class to give to the rich.

    • Annette Saint John Lawrence says

      I agree it was a brilliant analysis. Yours however, is fraught with
      overflowing emotionalism which will always diminish clarity. What you convey is that you truly believe that President Obama is the enemy in bed with those you want to take over the Country. I see a
      good man that walked into a Presidential Office at a time in history
      where Angels would fear to tread. I see someone who thinks things
      through from all points. Have I sometimes been annoyed with choices
      made? Sure. I also know that while I do not know but do sense a
      Grand Design. Do I want to see tax cuts extended for the wealthy?
      No. But I do ask myself what I would do if I had to make the decision. Could I sleep at night knowing I did something that would leave children, parents without the barest of necessities? I
      certainly would not want to! Would I just tell myself they are simply to be collateral damage for the cause? No! Intellectual honesty demands that I also know there are some situations that would demand opting for what would serve the greater good of all.
      Anyone who has the eyes to see, would see President Obama as a
      man who agonizes over the choices. A vast difference from the
      previous administration that rushed to implement the destruction
      of a Nation and did it so very well.

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