#Robert Reich's Blog (Atom 0.3) Robert Reich's Blog (RSS 2.0) Notify Blogger about objectionable content. What does this mean? Blogger Send As SMS Get your own blog Flag Blog Next blog ____________________ Search This Blog SearchBlogThis! Robert Reich's Blog Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley. This is his personal political-economic journal. About Me My Photo Name:Robert Reich For copies of articles, books, and public radio commentaries, go to www.robertreich.org. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ This blog is also available as an RSS and XML feed. 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Click here to go to the iTunes feed. [orange-xml.png] View my complete profile Recent Posts * The weakest cabinet in history * What is a Democrat? * The Complainers * Supply-side Crapola * Tenth Anniversary of Minimum-Wage Hike. Democrats Should Do it Again. * China, Big Oil, and George W * Giving Lots of Money to Your Kids * A Dangerous Precedent * How close is Iran? * William Sloane Coffin RIP Powered by Blogger Thursday, May 11, 2006 Tax Obscenity Here we are six months before a mid-term election, with polls showing only about 20 percent of the American public approving the job Congress is doing. The federal budget deficit is still out of control. We've got a war going on. So what's Congress giving us now? A $70 billion tax cut. The tax cut would be politically irresponsible, but not obscene, if it went to middle-income workers now facing sky-high fuel prices and soaring health-insurance costs, and variable-rate mortgage payments heading through the roof. But this tax cut is mostly going to people who are already very comfortable. Hence, it's both irresponsible and obscene. 87 percent of the benefits of this tax cut will go to the 14 percent of American households earning above $100,000 a year. Twenty-two percent of the benefits will go to the richest two-tenths of one percent of American households earning more than a million dollars a year. I'd appreciate it if someone could explain to me why we need another tax cut for high-income Americans especially when the gap between the rich and poor, and between every rung on the income ladder, is wider than it's been in almost a century. Some administration apologists, including the editorial page of the Wall Street Journal, claim repeatedly that the rich are paying a larger-than-ever share of income taxes, so it's entirely fitting that they get the lion's share of any tax cut. This logic conveniently leaves out two facts. First, the rich are now paying a smaller percentage of their income in taxes than at any time in the last seventy-five years. That they pay a lot of taxes nonetheless is a by-product of the mind-boggling increase in their income and wealth relative to most other Americans. Second, if you consider not just income and capital-gains taxes but all the taxes people pay - including payroll taxes and sales taxes - you find that middle-income workers are now paying a larger share of their incomes than people at or near the top. We have turned the principle of a graduated, progressive tax on its head. posted by Robert Reich | 9:42 AM 19 Comments: SportyChick said... Speaking of tax cuts, do you have an opinion you'd like to share on the CA gubernatorial race (the Democratic side) between Phil Angelides and Steve Westly? 11:32 AM PubliusToo said... I'll tell you why all the tax cuts (as if you didn't already know). That has been the republican shtick since Ronald Reagan was elected in 1979. Fiscal policy be damned, they'll cut taxes till the cows are dead. Democrats need to be smart about tax cuts. We can cut the marginal rates, but not the revenues, by ending all the tax preferences. Indeed, Ronald Reagan did precisely that (and even ended the capital gains preference!) with the 1986 tax reform act. Who do you think benefits from all those juicy tax expenditures? The biggest beneficiaries are not the working poor or the middle class, but the large corporate taxpayers and high net worth individuals, i.e. our friends on Wall Street. Indeed, we can turn the whole tax system on its head to favor middle class workers simply by providing a dollar-for-dollar tax credit against the income tax for the payroll tax. Watch the republicans squirm as they try to explain to the middle class why they should not receive a tax cut that includes such a tax credit. The republicans will be forced to return to their trickle-down, supply-side, voodoo economics rhetoric, and as they say in Texas, that dog just won't hunt no more. After all, if the provision of tax benefits to encourage production constitutes sound economic policy, then tax benefits to encourage work by reducing the after-tax cost of labor should be equally sound economic policy. Anyway, that's my story and I'm sticking to it. 2:31 PM Jeff A said... Republicans= fear and bribery. The bribery has been the tax cuts. As a Virginian I saw Republican Governor, Jim Gilmore, try to get rid of the personal property tax (vehicles, boats, etc). It was a gradual tax cut over 5 years or so. His last year in office, as our state revenues were shrinking, he mandated that the next phase of the tax cut would go on as scheduled. As Democrat Mark Warner came into office, the state budget, predictably, was in shambles. By using a little more common sense, Warner was able to set our state's finances straight. Unfortunately, W's tax cuts and budget deficits are going to take so many years to set straight. The only thing his admistration has done to spur economic growth is to leave the fed funds rate at 2% or lower for over 3 years. When was the last time the fed funds rate that low? Not since the early '60s. The tax cuts for the rich have given them enough extra money to buy second and third houses, and drive home prices out of sight. It's a damn shame. I can't think of one good thing Bush has done, with the exception of his speech at Ground Zero, a few days after 9/11. 8:31 PM Eagle74 said... There is an argument that says tax cuts stimulate the economy. Is this true and if not, why is the economy growing given higher fuel costs, increasing debt, the war in Iraq, et al. There must be some reason. Perhaps tax cuts do help. 5:33 PM bakho said... Any chance you could post a source on the tax data? 6:06 PM Anonymous said... Robert Reich has started a blog; I wish he started podcasting, he's always interesting to listen to like in this podcast with the title How Unequal Can America Get Before We Snap? http://truckandbarter.com/mt/archives/2006/05/introducing_som.html 12:01 PM Anonymous said... This blog is just what the world needs: another moonbat magnet. 4:27 PM Anonymous said... Dear anonymous, please get thee yonder to freerepublic pronto! This blog is part of the fact-based community, as opposed to Dubya's created truthiness. Way to go, Professor Reich! My daughter was in your last Brandeis semester, and I, a humble housewife, am going to attempt to read the books of yours she came home with. Keep doing what you're doing - this country needs you to keep speaking out. 6:47 PM money said... "Second, if you consider not just income and capital-gains taxes but all the taxes people pay - including payroll taxes and sales taxes - you find that middle-income workers are now paying a larger share of their incomes than people at or near the top." Boy, this is a fascinating statistic. Im writing a paper on this at the moment and, was wondering if you could let me know where you got the data for this. Love your books, Robert! 8:36 PM Nancy/Ca said... I am so pleased to discover your blog today,Mr.Reich. I just finished your wonderful book "Locked in the Cabinet" I was so grateful for your honesty in it and I cant tell you how many times I laughed out loud! 11:37 PM george said... Tax obscenity is only part of the picture, yes, a big part. For some great ideas for the D's to try to stand with, go to opentrench.blogspot.com for the May 15th edition. You may be enlightened, encouraged or glad to know your not alone on some of these great thoughts. We have to start somewhere and these IDEAS may help build a strong foundation to grow from. 8:35 AM James Kroeger said... RR: "We have turned the principle of a graduated, progressive tax on its head." The incredible shame of all this is that the Progressive Income Tax is actually the method of taxation that hurts wealthy people the least, even when rates are steeply progressive. This is because all taxpayers are deprived of disposable income in a way that maintains the comparative bidding positions of each within the marketplace. When this is done, we can know with certainty that: (1) prices will drop in the markets that serve the rich, and (2) none of America's wealthiest taxpayers will actually experience any loss of purchasing power. Their smaller disposable incomes are guaranteed to buy them just as much as their higher disposable incomes did previously. This is because markets work. If the disposable incomes of all wealthy income earners are reduced, there will not be enough dollars in their collective hands to buy everything at the higher pre-tax prices. Sellers would have no choice but to reduce their prices to levels that the wealthy could afford (and to pressure their suppliers---through reduced derivative demand---to reduce their costs). This market adjustment continues until the same number of luxury items is purchased as before, only at lower prices. No actual loss of purchasing power occurs. It is not possible to deprive the wealthy of their privileged positions at the top of the ladder of success through progressive income taxation. It is guaranteed that they will always have the highest disposable incomes in the land, which is all they need to secure for themselves the scarcest goods and services produced by our economy. Supply Siders are guilty of embracing an important logical fallacy of composition. They do not realize that because the progressive income tax (one with no-loopholes) reduces disposable incomes in a way that maintains the comparative 'bidding positions' of each taxpayer, each is spared the decline in purchasing power she would otherwise have experienced if only she had paid the tax. Because we have a market economy, economic activities that provide a benefit to an individual, or a few, do not continue to be beneficial when everyone acts the same way. Only exceptional behavior is rewarded by the marketplace. Their ignorance is our pain. The Progressive Income Tax: Theoretical Foundations 2:01 PM Jeff A said... This is in response to eagle 74: Tax cuts do stimulate the economy, but giving money to the poor instead of the rich would stimulate it more. Also, deficit spending, spending more money than we take in, stimulates the economy, but causes more problems than it solves. If tax cuts for the rich were so wonderful, then why were government receipts for 2001 to 2004 less than 2000? It's taken our economy 5 years to get back to the revenues we had when Clinton was in office. Check out the following web page: http://origin.www.gpoaccess.gov/usbudget/fy07/sheets/hist01z1.xls 2:45 PM James Kroeger said... The link I provided above is apparently no good. If you want to read The Progressive Income Tax: Theoretical Foundations, the URL is: http://nontrivialpursuits.org/Tax_Policy.htm#method_of_taxation. The period at the end is part of the link 9:26 AM j_krehbiel said... The Republicans have been allowed to frame the tax discussion, to the extent that there really is one, in terms that paint all taxes as bad. I teach high school science, and a Government teacher has a class of ninth graders in my room during my planning. I heard him say that some proposed idea might be good, but does it mean that we would have to pay more taxes? "If so," he said, "I wouldn't want that." Taxes are the way we pay for what we want from the government. If we want something, we have to have a rational discussion of how much is will cost, and how we are going to raise revenues to pay for it. That would be a refreshing conversation, wouldn't it? I thought of a great poster for the Democrats. A picture of the Katrina victims at the Superdome with the caption "Which beast are you starving, Mr. Bush?" 1:34 PM Redbeard said... aren't the districts on mississippi river blue, not reddish? 10:23 AM biodegradable me said... You're right, redbeard. I think he just got the colors switched. There's also a strip of blue along the Appalachians. I thought of how we could make the economy absolutely awesome if the Republicans' theories about trickle down economics are true. 1. We cut all taxes to the rich and to corporations. 2. Then we tax the poor and use the money to subsidize the rich and the corporations. 3. That way the rich will have loads of money to invest and the economy will skyrocket. 4. The great economy will cause the poor to have more money, which we can then tax and give to the rich in order to keep the economy growing. It is a perfect plan, creating cycles of wealth, right? 12:29 PM Anonymous said... Reich, you're a master of obfuscation, but then wackos on the far right and the far left generally are. The taxes that have been cut are INCOME taxes. That you felt compelled to include other taxes in your diatribe only serves to shine the spotlight on your weak argument about the actual taxes that are at issue. FACT: the top 3 income quintiles pay almost ALL the federal personal income taxes going to the government. The bottom 2 pay a miniscule percentage, and the majority with kids pay nothing in federal income taxes. Zilch. Nada. Goose egg. Now, if you want to rant about how the lower and middle classes pay the most in sales and payroll taxes, rant on. You'd be correct, but that's obviously because there are a whole helluva lot more poor and middle class folks than rich people. Always have been, always will be. The volume of things that the poor and middle classes buy obviously far far exceeds the amount that the rich purchase, so of course those groups pay the vast majority of sales taxes. Duh. Of course, you don't mention that because it's what you and the quasi-Socialists you agree with hope to keep hidden from the masses you like to dupe into thinking you really care about them. A relative handful of Americans pay a disgustingly huge portion of the federal income tax bill, and you know it. Don't blather about deductions and tax shelters, either. Even factoring that in, the rich and upper middle classes pay a large percentage of the total fed income tax bill. One other thing you never mention, which is very telling, is the fact that while the lower and middle classes are often paying the majority of their taxes on the lower end of the graduated tax rates, the rich are paying a much higher percentage of their taxes on the highest end of the tax rate scale. A family earning $40,000 a year pays a lot of their taxes at the lowest rate. A family earning $500,000 a year is paying a lot of their taxes at the highest rate. That's why a tiny number of Americans are paying such a grossly disproportionate amount of the overall federal income tax receipts. You know it, but you never do anything but bash them. Shame on you. Go live in Europe, where your kind of economically disastrous nonsense has wrecked economies and helped put 10% or more of the people out or work. 7:04 PM Anonymous said... From above: "A relative handful of Americans pay a disgustingly huge portion of the federal income tax bill, and you know it. Don't blather about deductions and tax shelters, either. Even factoring that in, the rich and upper middle classes pay a large percentage of the total fed income tax bill." That's exactly the point. While the rich pay a higher percentage of the total tax revenue, the percentage of the taxpayer's (the individuals) revenue is higher for those who are not rich. The fact that the rich's tax constitutes a larger portion of the total tax revenue is as it should be, since they have more income. The problem is not that the rich donate more dollars, which then makes up the percentage you're citing... it's that the percentage of the individuals' income that the non-rich pay is higher than the percentage that the rich pay. So, the rich are personally affected less by taxes. That's the problem. You're using percentages to twist the meanings of things. If the tax percentage was, say, 15% for all brackets, the rich would still be paying more than the poor. Bottom line, the rich should be paying more in taxes because they make more. On top of that, it's ridiculous to state that a family making $500,000 a year is more impacted by taxes than one that scrapes by on a tenth of that. Sure, they may pay more dollars, but that's not the number that matters. If a family making that much money is in any way inconvenienced by anything, what in the world are they doing with their money? 12:00 PM Post a Comment << Home