[Robert Reich] A good fight on taxing the wealthy

The big fight in the months ahead ― and perhaps the defining battle of the upcoming election ― won’t be over cuts in Medicare. President Obama agrees with Republicans that some cuts may be necessary. The battle won’t even be over President Obama’s jobs program. Republicans have signaled that they might support some elements of it.

The big fight will be over whether the rich should pay more taxes.

This is where the president and congressional Republicans have chosen to draw the line. President Obama vows to veto any debt plan that cuts Medicare and Medicaid but doesn’t also increase taxes on the rich. Congressional Republicans vow to oppose any tax increases on the rich.

It’s a good fight to have.

The president is proposing new taxes on the wealthy ― including a special new tax that would require millionaires to pay at least the rate paid by average taxpayers; the closing of some loopholes and deductions for people making more than $250,000 a year; and an end to the portion of the Bush tax cut going to higher incomes.

Republicans accuse the president of instigating “class warfare.” But it’s not warfare to expect America’s best-off citizens to pay their fair share of taxes to bring down America’s long-term debt.

After all, the richest 1 percent of Americans now takes home more than 20 percent of total income. The last time the top 1 percent got this large a share was in the late 1920s.

This lopsidedness harms the economy by robbing the vast middle class of the purchasing power it needs to keep the economy going, unless they sink ever deeper into debt. But we know deepening debt can’t last. It ended in 1929 when a debt bubble burst, plunging the nation into the Great Depression. It ended in much the same way in 2008, as the nation sank into a recession that continues for most of us.

America’s super-rich are also paying taxes at the lowest top rates in half a century.

For more than 30 years, from World War II to 1981, the top marginal tax rate never fell below 70 percent. Under President Dwight Eisenhower it was 91 percent. Even after deductions and credits, wealthy Americans paid at a far higher rate than they have since.

The top rate is now 35 percent, and it applies only to income over $379,000. In truth, most of America’s super-rich pay a far lower rate. Last year, according to the Internal Revenue Service, the 400 richest Americans paid only 17 percent. That’s because so much of their income is classified as capital gains ― which, now at 15 percent, creates a loophole large enough for the super-rich to drive their Ferraris through. (Unfortunately, the president isn’t proposing to raise the capital-gains tax.)

Anyone who says the American economy suffers when the rich pay more in taxes doesn’t know history. We grew faster the first three decades after World War II than we have since.

The claim that owners of small businesses ― who create most new jobs ― will stop creating them if their taxes rise is also bogus. Only just over 1 percent of small-business owners earn enough to be taxed at the top rate ― and that’s just on the portion of their incomes exceeding $379,000.

Trickle-down economics is a cruel joke. We cut taxes on the rich under Ronald Reagan and George W. Bush, but little or nothing trickled down. Since 1981, the wages of most working people have gone nowhere, adjusted for inflation.

If the rich don’t pay their fair share of taxes, the rest of us will have to bear more of a burden. That burden will come in the form of either higher taxes on us, or less money for the things we depend on ― including health care, education, infrastructure and national defense.

If anyone’s declared class warfare, it’s the people who inhabit the top rungs of big corporations and Wall Street, who comprise a large portion of America’s super-rich. Intentionally or not, they’ve gone to battle against average workers.

The ratio of corporate profits to wages is higher today than it’s been since before the Great Depression. Even as salaries and perks keep rising in executive suites, the median wage continues to drop, and jobs continue to be shed.

Last year, more than one in three families with children was living in poverty. That’s the highest level on record, according to a new analysis of Census data by Northeastern University’s Center for Labor Market Studies.

Meanwhile, the chairman of Merck took home $17.9 million. Earlier this year Merck announced plans to lay off 13,000 workers. The CEO of Bank of America raked in $10 million. The bank recently announced that it’s firing 30,000 workers.

There’s something wrong with this picture.

Maybe I’m old-fashioned, but it seems to me people at the top, who have never had it so good, should sacrifice a bit more. That way the rest of us ― who are struggling harder than Americans have struggled in since the 1930s ― won’t have to sacrifice quite as much.

By Robert Reich

Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of “Aftershock: The Next Economy and America’s Future.” He blogs at www.robertreich.org ― Ed.

(Tribune Media Services)