Robert Reich: Scrap Bush tax cut for very wealthy

[babylonsister]

http://www.kansascity.com/2010/08/13/2148752/scrap-bush-tax-cut-for-very-wealthy.html

Scrap Bush tax cut for very wealthy
By ROBERT REICH

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So-called supply-side economists don’t like raising taxes on anyone and argue that raising them on the well-off will slow economic growth. They say people at the top will have less incentive to work hard, invest and invent.

History has proven them wrong. During 1951 to 1980, when America’s top marginal tax rate was between 70 percent and 92 percent, the nation’s average annual growth was 3.7 percent. But between 1983 and start of the Great Recession, when the top rate was far lower — ranging between 35 percent and 39 percent — the economy grew an average of just 3 percent per year. Supply-siders are fond of claiming Ronald Reagan’s 1981 cuts caused the 1980s economic boom. In fact, that boom followed Reagan’s 1982 tax increase. The 1990s boom was not the result of a tax cut. It came after Bill Clinton’s 1993 tax increase.

A final reason for allowing the Bush tax cut to expire is the most basic. Although Wall Street’s excesses were the proximate cause of the great recession, its fundamental cause lay in the nation’s widening inequality. For years, most of the gains of economic growth in America have been going to the top — leaving the nation’s vast middle class with a shrinking portion of total income. (In the 1970s, the top 1 percent received 8 percent to 9 percent of total income, but thereafter income concentrated so rapidly that by 2007 the top received 23.5 percent of the total.) The only way most Americans could continue to buy most of what they produced was by borrowing. But now that the debt bubble has burst the underlying problem has re-emerged.

Why make it worse? Bush’s 2001 tax cut was a huge windfall for the wealthy. About 40 percent of its benefits went to the tiny sliver of Americans earning more than $500,000. So rather than debate whether to end the Bush tax cuts for the top and restore the top marginal tax rates to where they were under Clinton, we should be debating whether to raise the highest marginal tax rate higher than it was under Clinton and use the proceeds to give the middle class a permanent tax cut.

I’m not suggesting this, mind you, but just to get the debate started: How about restoring the top rate to where it was under John F. Kennedy (76 percent), or under Dwight Eisenhower (91 percent)?

[Frustratedlady]

1. I don't think a lot of people realize they are crying about 4% difference.

The party's over, folks. Park your yachts and get your hands dirty again. We have work to do.

[unblock]

6. it's a slippery slope, doncha know. if we permit a 4% hike, soon the libruls will take it all.

:sarcasm:

[IndianaJoe]

2. This should be a no-brainer

But in our muddled republic, tax cuts for the wealthy in the worst depression since the 1930s is actually talked about, debated, taken seriously. The rich, it seems, can never have enough.

[geckosfeet]

3. I like Dwight.

[DFW]

4. It's not just the yacht owners

There are a LOT of people who can't afford a yacht who would still be affected. I don't make anything like
$500,000 of course, but I would still be affected by the Bush tax cuts being allowed to expire. But gimme
a break, there are SO many people getting by, if only barely, on five figure salaries. If one can't budget
their income to meet their needs on a six-figure salary (let alone seven or eight), then it's time to ponder
if their needs are too great.

This would assume that the country could get its act together so that medical bills no longer bankrupt
people. Staying alive is a need that shouldn't be bankrupting anyone. At some point, preferably sooner
than later, this must be addressed as well. Making $250,000 does you no good if your medical bills are
$300,000.

[Skink]

5. How could top rates possibly have been as high as 91 percent?

were these war profiteers they were going after? It seems to me a rate like that would trigger capitol flight.

[unblock]

7. first, capital flight wasn't as easy back then; second, there were a LOT of "loopholes".

once upon a time, the federal government exerted a lot of control over the shape of the economy via tax policy. one of the reaganauts big arguments for their ginormous tax cut was that they'd be closing loopholes as well, so the overall effect would be minimal, though of course they lied.

still, there was certainly some truth to the matter in that the extremely high marginal tax rates drove the rich to seek tax shelters to avoid that. some of this was very good stuff, getting the rich to invest in energy programs and so on, but some of it was wasteful, getting people to "invest" in losing businesses just for the tax write-offs.

nowadays there's comparatively little control by the federal government via tax policy, it's just a collection mechanism, with a few things thrown in like the mortgage interest deduction and retirement fund tax deferrals and so on. it may seem like there's a lot of stuff going on, but compared to pre-reagan, there isn't.