Expert witnessWritten by Don Burnard | | email@example.com
In previous columns, I have discussed the unfairness of extending the tax cuts for the top of the income ladder. The fact that they, and virtually they alone, have benefited from the Bush tax cuts has contributed greatly to the growing income inequality gap in this country. Recent reports have shown that the income gap is reaching record levels unseen since, well, just before the Great Depression.
A recent report from the Center on Budget and Policy Priorities, a nonprofit, nonpartisan policy organization that works on the federal and state level on fiscal policy and public programs that affect low- and moderate-income families and individuals, shows just how stark this gap is. The nonprofit studied the change in actual incomes from 1979-2007, broken down from the bottom fifth of income earners (average $17,700) and found that this group had lost an average of $6,000 in yearly income by 2007. The second fifth (average $38,000) lost $10,000, the middle fifth (average $55,300) lost $13,000, and the fourth fifth (average $77,700) lost $11,700. The top fifth (average $198,300) posted a gain of $40,700 in purchasing power, and the top 1 percent (average $1,319,700) showed a whopping gain of $782,600.
These figures are based on congressional budget office figures. If income distribution had remained at the 1979 levels, just figure out which fifth you fall into and then add the loss figure to your income to see what you should be making. If you’re in that top fifth, or especially that top 1 percent, congratulations. You got quite a bonus at our expense.
Now, the Republicans, and some Democrats, want to borrow enough money to give the top 2 percent a $700 billion additional gift. Richard Thaler, one of the country’s leading economists, pointed out some of the more salient points about this folly in a Sept. 25 column in The New York Times. As he points out, President Obama has proposed retaining the current tax rates on incomes up to $200,000 for an individual and $250,000 for couples. Under this plan, everyone would receive a tax cut relative to Clinton-era tax rates and even those making $250,000 or more would receive a $6,000 cut. True, their bill would be higher, but fair is fair, right?
The Republican leadership, as Thaler points out, has drawn a line in the sand, saying it will oppose Obama’s bill (big surprise) unless all taxpayers remain at the current rate. He then refutes, rather effectively I might add, the Republicans’ three major arguments. The first is that it is folly to raise taxes in a weak economy. Thaler says, “ … if the primary goal is stimulating the economy, tax breaks to the rich are simply not cost-effective. Numerous studies have shown that the poor spend nearly all their money, while the rich save a significant amount of theirs.”
The second argument is that it would impose an excessive burden on small businesses, according to Thaler. The Obama administration has said that this will only affect 3 percent of small businesses. Republicans argue that the 3 percent earn 47 percent of the income from that sector and the taxes would apply to the bulk of small business income. Thaler says that while this sector includes everything from barbershops and carwashes to hedge funds and law firms, and included Goldman Sachs before it went public, the fact that 3 percent of businesses earn nearly half of the money is precisely what many people are concerned about: growing income inequality.
Finally, the last GOP argument is an oldie but a goodie; class warfare. These guys sound like a broken record. Thaler says his best response to that comes from Warren Buffett in 2006: “There’s class warfare all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
Thaler said, “The question comes down to whether we want a society in which the rich take an ever-increasing share of the pie, or prefer to return to conditions that allow all classes to anticipate an increasing standard of living. Demanding that the rich get a tax cut as a condition for tax relief for others is simply elitist. Tea Partiers take note.”
Richard Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago, so I think he has the creds to back up these points. This isn’t some “liberal” blogger or blue-collar columnist like yours truly. Think about it!