The One Answer: Tax the Rich

Exclusive: When President Barack Obama suggested a minor adjustment in tax rates for the rich – to make sure they pay at least the same percentage as their employees – Republicans cried “class warfare.” But higher taxes on the rich may be the only way to rebuild the middle class, writes Robert Parry.

By Robert Parry

It is curious that the American Right, which waxes nostalgic for the happier days of the 1950s when the United States was supposedly more moral and more united, ignores one of the central reasons behind that middle-class era: very high taxes on the rich.

Granted, some on the Right may love the Fifties because it was a time of racial segregation and second-class status for women. But what arguably made the era work was the fact that the U.S. tax structure “disincentivized” greed by ensuring that excess wealth was mostly recycled back into the Treasury for use building the nation and supporting research and development.

During Dwight Eisenhower’s presidency the top marginal tax rate – what the richest Americans paid on their top tranche of income – was around 90 percent. In the 1960s, under John F. Kennedy, that was lowered to around 70 percent, but that rate still meant the rich had a limited incentive to be greedy since they wouldn’t get to keep most of their extra money.

All that changed with Ronald Reagan’s presidency and his slashing of the top marginal tax rate by more than half (before it was adjusted upward slightly late in Reagan’s years and then during Bill Clinton’s presidency before being reduced again to 35 percent under George W. Bush).

Various tax loopholes and lower rates for capital gains also have let many of the richest Americans enjoy tax rates about only half of even those lower marginal income tax rates. Billionaire Warren Buffett has famously described paying a lower tax rate than his secretary, meaning that he and others in his category get to keep about 80 percent of what they make.

In other words, the American tax structure has been roughly turned on its head. From the rich paying between 70 and 90 percent on their top income, some now pay 20 percent or less, which means there is a much bigger incentive to be greedy.

Arguably, it was that incentivized greed – more than any of the social movements like civil rights for blacks and equal rights for women – that eradicated the rhapsodized Fifties and the middle-class culture that it represented in the nostalgic view of many Americans.

So, it’s ironic that the defense of lower tax rates for the rich is at the heart of the Right’s current political agenda. Some leading Republicans have even suggested that “tax reform” should impose at least some income tax on the poor and working class so the tax rates on the rich can be lowered even more.

It’s ironic, too, that the core of today’s economic crisis is that American bankers became so excessively greedy – spurred on by the prospects of “earning” bonuses in the tens of millions of dollars and keeping nearly all that money – that they blinded themselves to the risks from exotic financial products built on an unsustainable housing bubble.

If the tax rates had been kept at Eisenhower or Kennedy levels, not only would there have been plenty of money to keep the United States modern and strong but there likely would not have been the kind of financial crisis that, since 2008, has cost millions of jobs and required massive government borrowing to bail out the greedy bankers.

Thus, in a variety of ways, the Right’s orthodoxy of low taxes on the rich (or the “job creators,” as Republican wordsmiths prefer) has been a major driver in creating today’s massive federal debt and in savaging the middle class.

Two Societies

The data is now clear that the last three decades have witnessed a divergence between haves and have-nots unprecedented in the United States, at least since the lead-up to the Great Depression when a similar era of income inequality set the stage for financial disaster.

For instance, the non-partisan Congressional Budget Office – in an analysis of data from 1979 to 2005 – found that the inflation-adjusted income of middle-class Americans rose about 21 percent (only about one-fifth the increase enjoyed by the middle class during the post-World War II era).

Meanwhile, the income for the ultra-rich (the top 100th of one percent) jumped 480 percent from 1979 to 2005, rising from an average of $4.2 million to $24.3 million. And CBO’s analysis ends in 2005, thus missing the decimation of the middle class from the Wall Street bust of 2008.

The other bitter irony about all this is that despite the oil shocks and other problems of the 1970s, the United States was actually poised to reap huge benefits from the government’s investments in the 1950s and 1960s.

Eisenhower had used tax revenues to build the Interstate Highway system and other modern transportation infrastructure. Kennedy had pushed the Space Program which led to microprocessors and other crucial technological breakthroughs. Government funding also was behind major advances in medicine and in the creation of the Internet.

There were benefits emerging, too, from global markets based on an international system promoted and defended by the United States.

The wealth created by these various developments should reasonably have been shared by the American people, with some of the money reinvested to keep the United States at the cutting edge of transportation, science and technology.

Though higher productivity and global trade would mean the inevitable loss of many factory jobs, the higher profits – if recycled through the government to benefit the average American citizen – could have meant new employment opportunities in areas such as construction, teaching, research, health care and the arts.

Instead, because Ronald Reagan became president in 1981 and won over much of the U.S. population to his message that “government is the problem,” the new orthodoxy called for tax cuts to benefit the rich and the rollback of government enterprises.

The Right’s larger strategy was to starve the government of resources and to make sure that the benefits from the era’s economic gains went disproportionately to the investor class. Prosperity was supposed to come from “trickle-down” or “supply-side” economics.

Free-Market Propaganda

To ensure the political success of this project, the Right’s wealthy benefactors poured billions of dollars into building right-wing media and other propaganda outlets. Inundated with anti-government agit-prop, many middle-class Americans, especially white males, got confused about where their interests lay.

These Americans were sold on the notion that the federal government represented “tyranny” and that “freedom” required letting corporations and the rich control almost everything.

Even as the results of this orthodoxy became apparent in recent years, the Right’s well-funded political/media apparatus continued to dominate the national debate. Though polls showed sizeable portions of the American public favoring higher taxes on the rich, the political momentum still rested with the Tea Party and its billionaire patrons.

The Republicans in Congress have made clear they will reject any increased tax revenues at all (although some favor shifting more of the burden away from the rich and onto the poor). President Barack Obama’s modest proposal for a “Buffett rule” to make sure that the rich at least pay as high a tax rate as their workers is denounced as “class warfare.”

The Right also benefits politically from the fact that many key Democrats (and many top news media personalities) have benefited from the lower tax rates on the rich. The likes of Rahm Emanuel and Larry Summers – key members of Obama’s original White House team – raked in millions of dollars from Wall Street work while out of government.

The class orientation of many politicos and journalists match up more with the rich than with the middle-class and the poor. When I was a correspondent at Newsweek, I would sometimes marvel at office talk in which some of my colleagues would refer to themselves as members of the “meritocracy” and think there was nothing wrong with getting compensated accordingly.

It is perhaps human nature for people who make lots of money to convince themselves that they are truly worth it – and that others are not.

This combination of elitism and incentivized greed has devastated the old social compact of the United States that emerged from the Great Depression and World War II – that “we are all in this together.”

A Washington Post article on June 19 captured this division of America into winners and losers (although the Post editors not surprisingly failed to note the role of Reagan’s tax cuts and similar factors in this separation).

 The article described the findings of researchers who gained access to economic data from the Internal Revenue Service, revealing which categories of taxpayers made the high incomes. To the surprise of some, the big bucks were not flowing primarily to athletes or actors or even stock market speculators. America’s new super-rich were mostly corporate chieftains.

Cultural Shift

As the Post’s Peter Whoriskey framed the story, U.S. business underwent a cultural transformation from the 1970s when chief executives believed more in sharing the wealth than they do today.

The article cited a U.S. dairy company CEO from the 1970s, Kenneth J. Douglas, who earned the equivalent of about $1 million a year. He lived comfortably but not ostentatiously. Douglas had an office on the second floor of a milk distribution center, and he turned down raises because he felt it would hurt morale at the plant, Whoriskey reported.

However, just a few decades later, Gregg L. Engles, the current CEO of the same company, Dean Foods, averaged about 10 times what Douglas made. Engles worked in a glittering high-rise office building in Dallas; owned a vacation estate in Vail, Colorado; belonged to four golf clubs; and traveled in a $10 million corporate jet.

Unlike Douglas who recognized the corporate value of team work and respect for one another, Engles apparently had little regard for what his workers thought about his compensation.

“The evolution of executive grandeur – from very comfortable to jet-setting – reflects one of the primary reasons that the gap between those with the highest incomes and everyone else is widening,” Whoriskey reported.

“For years, statistics have depicted growing income disparity in the United States, and it has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent.”

The Post article continued: “The largest single chunk of the highest-income earners, it turns out, are executives and other managers in firms, according to a landmark analysis of tax returns by economists Jon Bakija, Adam Cole and Bradley T. Heim. These are not just executives from Wall Street, either, but from companies in even relatively mundane fields such as the milk business.

“The top 0.1 percent of earners make about $1.7 million or more, including capital gains. Of those, 41 percent were executives, managers and supervisors at non-financial companies, according to the analysis, with nearly half of them deriving most of their income from their ownership in privately-held firms.

“An additional 18 percent were managers at financial firms or financial professionals at any sort of firm. In all, nearly 60 percent fell into one of those two categories. Other recent research, moreover, indicates that executive compensation at the nation’s largest firms has roughly quadrupled in real terms since the 1970s, even as pay for 90 percent of America has stalled.”

Not Blaming Reagan

While these new statistics were striking – suggesting a broader problem with high-level greed than might have been believed – the Post ducked any political analysis that would have laid blame on Ronald Reagan and various right-wing economic theories.

In a follow-up editorial on June 26, the Post lamented the nation’s growing income inequality but shied away from proposing higher marginal tax rates on the rich or faulting the past several decades of low tax rates.

Instead, the Post suggested perhaps going after deductions on employer-provided health insurance and mortgage interest, tax breaks that also help middle-class families.

The Post’s peculiar reaction to America’s vast economic disparity – that the middle class should be hit once again – is sadly typical of this blending of elitism and greed. Many Post editors presumably enjoy their six-figure salaries – and see no reason why they or their even richer friends should pay higher taxes.

But this income disparity, which was made worse by Ronald Reagan’s tax cuts, has effectively killed off the middle-class ethos of the 1950s, that sense of community and shared sacrifice with the goal of investing in the nation and building a better future for the children.

That has been replaced by a society of the greedy rich (surrounded by fairly well-compensated staff, including media and political propagandists) and then the rest of the country, facing lost employment, lost homes and lost hope.

The simplest answer to this national crisis would seem to be the restoration of the tax rates of the 1950s or the 1960s – as politically difficult as that might be.

[For more on these topics, see Robert Parry’s Secrecy & Privilege and Neck Deep, now available in a two-book set for the discount price of only $19. For details, click here.]

Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & ‘Project Truth’ are also available there.

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19 comments on “The One Answer: Tax the Rich

  1. Jym Allyn on said:

    The current Republican justification of people in upper incomes being “job creators” sounds like the comments of the Feudal Lords who felt that they were entitled and deserved all of the wealth because the serfs wouldn’t know what to do with food and freedom.

    Except that we are now in a Consumer economy rather than a Feudal economy. And increases in the wealth of the rich comes either from the consumption of the rest of the economy or from their manipulation of the bureaucracy (such as tax rebates for oil companies or a castrated SEC).

    Bureaucratic manipulation does not create wealth but rather only leads to our current recession and unemployment and is the least productive form of welfare. When you “feed” people who are rich, they only get richer and abuse their power. When you “feed” people who are hungry, they go back to work, learn new productive skills, and increase the overall consumption and production of society.

    It is a sense of economic responsibility that the current Republicans (and their “Convention of Village Idiots”) seem to have forgotten.

  2. I almost hate to bring this up, but it is so. The Christian Right votes Republican because they have heard the siren song of “family values.” In other words Republicans are more “Christian.” Most of the CR still believes in God and country and have lost any prophetic vision that would require speaking truth to power. They are blind to what is going on, and the sad part is that, even if they did know, narrow private morals would trump broad social moral concerns. They do not realize they are fish in a steadily shrinking pond. And when it dries up, they will blame the welfare queens, prostitutes, etc.

  3. Karen Romero on said:

    “It is perhaps human nature for people who make lots of money to convince themselves that they are truly worth it – and that others are not”.

    In reference to the above sentence I respectively, somewhat disagree. You see Bob, most of those who you are referring to are not even human. They may look human, but according to the Akashic Records they are indeed non human.
    They actually have a borg like thing going on among them, this is embedded in each of their DNA. Their DNA coding is to want, desire, and crave above all else for their name to be on the money. You will find many of these non humans working at places like Goldman Sachs and most certainly on Wall Street. These non humans I refer to, many of them do not even realize that they are in fact non human. Tim Geithner is one of them. And, he did get his name on the money. Larry Summers is one of them and he also got his name on the money. Lloyd Blankfein is one of them and perhaps he is often in a bad mood because he didn’t get his name on the money. Some of them don’t even work on Wall Street but are found in government jobs often times leadership positions. John Pistole [Director of the corrupt despicable TSA]is one of them and he won’t be getting his name on the money. David Miscavige [Director of Scientology] is one of them, and he also won’t be getting his name on the money. Michael Chertoff is one of them, and he is the one that sold the unsafe scanners to John over at TSA! Just so the readers reading this comment understand…Ben Bernanke is not one of them. He is most definately human, albeit an evil humanoid.
    Oddly, Janet Napolitano is half one of them, and half human.

    So Bob considering what I have told you, if I was writing this article and certainly knowing what I know, I would rephrase your sentence to read…

    It is perhaps NON human nature for people who make lots of money to convince themselves that they are truly worth it – and that others are not.

    KNOWING THIS INFORMATION MIGHT HELP THOSE OF US THAT ARE HUMAN UNDERSTAND AND MAKE SOME SENSE OF THE LIES AND GREED TAKING PLACE THAT IS ABSOLUTELY DESTROYING OUR ONCE BELOVED COUNTRY.

    JUST SAYING…

    I know I have said this before, but I will say it again. I LOVE CONSORTIUMNEWS.COM!

    Truly,
    Karen Romero

  4. Call them what they are: mob creators.

  5. Mary B. Sanchez on said:

    How can it ever be fair for anyone to be unable to earn a descent living, unless they truly don’t make the effort? A minimum wage has been established with that thought in mind, though, of course, that is not enough for a family to live on. Isn’t it really fair and right that there should be a sliding scale of taxes with thoughts of what a family of a given size can or cannot afford to pay. Shouldn’t health care, a basic human right, also be provided on a sliding scale, based on what a working individual can afford to pay? All work in our society has value, and no one should be condemned to live in extreme poverty unless they choose not to contribute at all. A gardener’s or a waiter’s work is at least as honorable as an investor’s or lawyer’s work. Of course there should always be incentives to improve our situations. This kind of thinking is not socialism, it’s the American way.

  6. Doni Whitley on said:

    I weep for the America I grew up in. The one we had before big business bought up all the power. The people were the power behind the direction of our country. Back then the people we elected actually listened to the voices of their districts, be it local, state or federal. Automation is taking over many jobs once worked by people, and businesses moving out of country to hire low wage employees, and loopholes in regulations can all be seen as the current power of greedy people. Wealthy people and businesses that are sucking our country dry. While they consentrate on making more profit, our very country is falling apart, literally, with roads, bridges and other infrastructure breaking up and wearing down. But where’s the profit in that? The values of the greedy have given way for profit and there’s no room for caring for our country any more.
    Oh yes, I weep for America, but I’ll put up one heck of a personal fight before I’ll give in to the greed that’s bringing us down.

  7. John Steinsvold on said:

    An Alternative to Capitalism (if the people knew about it, they would demand it)

    Several decades ago, Margaret Thatcher claimed: “There is no alternative”. She was referring to capitalism. Today, this negative attitude still persists.

    I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: “Home of the Brave?” which was published by the Athenaeum Library of Philosophy:

    http://evans-experientialism.freewebspace.com/steinsvold.htm

    John Steinsvold

    Perhaps in time the so-called dark ages will be thought of as including our own.
    –Georg C. Lichtenberg

  8. Ashraf Ali M. Nayani on said:

    Before increasing income tax rate for rich Governments need to collect the Taxes from each and every person who is making money. Government should go
    after people who are not paying a single Dollar in Income Tax and Sales Tax.
    They are small business people all over USA making $50,000.00 to $500,000.00 and not paying any Taxes. Doing business on cash, not filing tax return keeping themselves away from the system.

    • Before increasing taxes on the rich…? Why? The working poor already pay a significant amount of FICA taxes considering their income thanks to the Reagan/Pickle’s steep hike on FICA taxes under the guise of saving Social Security in about 1983. The FICA tax has supplemented general funds for decades. The so-called trust funds are full of IOUs. Small businesses are paying significant interest rates on the credit loans from big banks. It’s the big corporations that are getting away (lawfully, of course) without paying their fair share of the taxes.

  9. Hey lefties get it through your heads a rich person owes you nothing. If you worked hard in school you could of became rich. Taxing the rich may make you feel good but its not your money. This is America but we are not in this togther. Whats mine is mine and whats yours is yours. Ill decide who and where I wanna help with the money I earned. You all had a oppertunity to make somthing of your lives so stop being jelious and sleep in the beds you made

    • This comment perfectly illustrates the phenomenon referred to in the column. The grammar and punctuation clearly reveal the author to have little, or poor, education, and therefore there’s no way s/he could possibly be wealthy. And yet s/he sticks up for those rich citizens whose failure to contribute what used to be considered a perfectly normal level of income via taxes has directly fed into the financial dire straits we find ourselves in today. The example would be frustrating if it weren’t simply depressing.

      • So all wealthy people are educated? Hmmm I disagree with that statement.

      • Wrong. Punctuation? You dont see the ideas that are spoken before you. As for my situation I’m doing great. I own my own bussiness, feed my family,pay my bills and have plenty left over. I can’t thank the public school system for my success because they were only worried about summers off. If I can’t write properly you can blame my teachers of the past, but I have no problem taking the full blame unlike you who want to blame the rich for your woes.

        • Tom- You are a true class act. That is a representative of a class of individuals who had the good fortune of grabbing some cookies when the jar was full. Owning your own business is a matter of luck. Many brilliant individuals have failed in the effort of owning their own businesses due to economic circumstances alone. The underlying truth here is that if the middle class is paying 6 percent more of their pay than the highest earning classes, that means that our economy is relying upon 1 % of the population to be an economic catalyst using all that additional disposable income to support businesses small and large. Do the math, thats far from ideal. At a minimum the same percentage should be required of the highest earners than of those who earn less. Wealth is many times the result of heritage , many times the result of luck, and sometimes the result of brilliance. Economic improvement benefits the highest earners as well. Paying their fair share into the stability of the government allows for future tax policy to be more stable. It is amazing how many “wealthy” individuals are crying murder for disability assistance when something happens to cause them to have a severe drop in income. They whine, cry and complain a hundred decibels louder simply because they feel entitled. Yet, their apathy to understand the importance of paying their fair share is the reason that funds for disability and unemployment are struggling. A reminder to those who feel they are invincible that these benefits are for everyone, including those who are wealthy as of today. When you have no customers to allow you to live large , whats your story then Tom? Im guessing take all the money you don’t have to pay to the government that you set aside to rely on? See the hypocrisy here?

    • “We must, indeed, all hang together or, most assuredly, we shall all hang separately.”

      - Benjamin Franklin

  10. Jealous

  11. 1. Higher taxes on rich individuals amount to a fractional reduction of their surplus income, while they still retain a great amount of their accumulated surplus; versus, higher taxes on poor individuals amount to a reduction of their survival resources, since by the definition of being poor, they don’t have any surplus.

    Meanwhile the middle class limps along on continually diminishing surpluses, most of which are spent later anyway, to stabilize their future survival.

    2. Any entity that consumes stuff faster than that stuff can be renewed will eventually fail – you know, the bigger the come the harder they fall. It’s important for the rich to remember that rich is only possible if the working classes are stable enough to keep generating the wealth.

    Keep in mind that prior to the 1929 crash, the so-called Roaring 20′s only “roared” for a small fraction of the population.

  12. Tax the rich?!!! I say we take it one step further and we toss the vermin out of our country. Throw them all out so that we may bring this country back to a more civilized time. The time has come to eliminate these blood suckers from our society.

  13. The working class voted for Reagan, in large part, because he told them what they wanted to hear about god, guns, and welfare queens; not to mention a none-too-subtle wink and a nod to southern racism. The Reagan administration then marked the first time since the great depression the standard of living of American workers fell. I guess it’s only ‘class warfare,’ if it’s directed upward.