A new poll finds that most Americans think the rich should pay more taxes to help balance the budget.
According to the 60 Minutes/Vanity Fair poll, 61 percent favor increasing taxes on the wealthy as a way to reduce the deficit. The next most popular way was to cut defense spending, chosen by 20 percent.
Four percent would make cuts in Medicare and three percent would make cuts in Social Security.
Last month, President Obama brokered a deal with Republican leaders to extend the Bush-era tax cuts for millions of Americans, including the wealthiest.
Incoming Republicans preparing to take control of the House of Representatives, want to extend all Bush-era tax cuts “permanently” –which would add nearly $4 trillion to the deficit over the next 10 years. Meanwhile, they’re vowing to make $100 billion in spending cuts.
The current federal deficit is $1.3 trillion.
This isn’t all that surprising: Let someone else pay the money. Similar polls from years past have delivered the same result: Tax the rich.
The only difference now is that two thirds of all income now goes to the top one percent of Americans. That’s a level of income concentration unseen since 1928.
A report by economists from Duke and Harvard University round that across all ideological, economic and gender groups, Americans thought the richest 20 percent of our society controlled about 59 percent of the wealth; the real number is closer to 84 percent.
According to the Congressional Budget Office, between 1979 and 2005, the mean after-tax income for the top one percent increased by 176 percent, compared to an increase of 69 percent for the top one-fifth of all Americans (a quintile), 20 percent for the fourth quintile, 21 percent for the middle quintile, 17 percent for the second quintile and six percent for the bottom quintile.
Former Federal Reserve chief Alan Greenspan called this a “very disturbing trend.” A study by the Southern Economic Journal found that “71 percent of American economists believe the distribution of income in the US should be more equal, and 81 percent feel that the redistribution of income is a legitimate role for government.”
The National Taxpayers Union claims that the top one percent pay 40 percent of income taxes. They’re leaving out a couple of things:
–The figure doesn’t include sales taxes and property taxes, both of which are rising and both of which hurt the middle class and poor more than they do the rich.
–The figure also excludes the payroll tax, where 80 percent of Americans pay more in taxes than they pay in income taxes.
–The wealthy also use a lot of tax deductions and tax credits, and in fact, there are a lot of super rich who pay only about a 17 percent rate because a lot of their income is treated as capital gains (which is at a 15 percent rate). It’s not surprising to find hedge fund managers and private equity managers paying 15-16 percent tax rate who are earning over $500,000 a year.
–The figure also doesn’t account for the discrepancy in Social Security taxes. Right now it’s capped at $106,000. In other words, the person making $106,000 pays the same amount in taxes as the person making $750,000. The person making $750,000 should pay more as a percentage, not based on a cap. Incidentally, the very wealthy making their money off capital gains and dividends? The Social Security tax rate and the Medicare tax rate for those earnings is zero.
There’s an argument that says capital gains and dividend taxes should be low because capital gains drives investment. That’s questionable. Most investments involve some kind of capital gains capital gains but the question is how much those earnings are really helping the economy. If all you’re doing is trading stocks, which is where so much of the capital gains earnings are generated, how is that creating jobs? When you buy a thousand shares of General Electric, GE doesn’t see any of that money. The money goes to the last guy who held those thousand shares. So all you’re doing is moving money from one person to another.
If you get a CD at your credit union, they’ll turn around and loan that money, which actually does help the economy.
Rich, however, is relative. $100,000 in Waco, TX, goes a lot farther than it does in Stanford, CT.
It’s possible to build into a federal tax law a sliding tax scale based on the cost of living in your area. We don’t do that, but we could.
We might consider a flat rate, or even a sliding rate that automatically comes out of your earnings. In other words, you don’t file annual forms and send them to the IRS; whatever the determined rate, it’s taken out of your weekly or bi-weekly paycheck or your quarterly dividend statement, much like direct deposit works. It’d be one way to eliminate one of Washington’s bloated agencies, the IRS, or more realistically, reduce it down to a few hundred accountants who insure the oversight of electronic data transfers.
The real issue over the longer term is not the deficit number per se, it’s the ratio of the national debt to the entire national economy. The way you reduce that ratio is to get the economy growing again. If the economy stays relatively anemic, that debt as a proportion of the total economy is going to grow to an enormous extent.
Job creation is the best way to reduce that ratio, and the argument is that the wealthy, who are the nation’s job creators, need tax cuts so that they can invest the additional revenues in business which will then create jobs and grow the economy.
The problem: In a global economy, the wealthy don’t always invest in the United States; they invest around the world –wherever they can get the highest return. Big companies, for example, are sitting on almost a trillion dollars in cash, but instead of using that money to create more capacity in the United States or more jobs, they’re going abroad.
So the leaves us with a question: If job creation is the best way to reduce the debt ratio, how do we create jobs here when, in a global economy, it’s more attractive and more profitable to job creators to ship those jobs oversees?