Tax the Wealthy Like We Used To
ROBERT REICH in Robertreich.Substack.Com
It’s
always the same when Republicans take over a chamber of Congress or the
presidency. Horrors! The debt is out of control! Federal spending must be cut!
Not
only is the story false, but it leaves out the bigger and more important story
behind today’s federal debt: the switch by America’s wealthy over the last half
century from paying taxes to the government to lending
the government money.
This back story needs to be told if Americans are to understand what’s really happened and what needs to be done about it. Republicans won’t tell it, so Democrats (starting with Joe Biden) must.
A
half century ago, American’s wealthy financed the federal government mainly
through their tax payments. Tax rates on the wealthy were high: Under
Republican President Dwight Eisenhower, they were over 90 percent. Even
after all tax deductions, the wealthy typically paid half of their incomes in
taxes.
Since
then — courtesy of Ronald Reagan, George W. Bush, and Donald Trump — the
effective tax rate on wealthy Americans has plummeted. Even as they’ve
accumulated unprecedented wealth, today’s rich are now paying a lower tax rate
than middle-class Americans. (The 400 richest American families paid a tax rate
of just 3.4 percent between
2014 and 2018, while the rest of us paid an average tax rate of 13.3 percent.)
One
of the biggest reasons the federal debt has exploded is that tax cuts on
wealthier Americans have reduced government revenue.
Meanwhile,
America’s wealthy are financing America’s exploding debt by lending the federal
government money, for which the government pays them interest.
As
the federal debt continues to mount, those interest payments are ballooning —
hitting a record $475 billion in
the last fiscal next year (which ran through September). The Congressional
Budget Office predicts that interest payments on the federal debt will
reach 3.3 percent of the
GDP by 2032 and 7.2 percent by
2052.
The
biggest recipients of these interest payments are not foreigners but wealthy
Americans who park their savings in treasury bonds held by mutual funds, hedge
funds, pension funds, banks, insurance companies, personal trusts, and estates.
Hence
the half-century switch: The wealthy used to pay higher taxes
to the government. Now the government pays the wealthy
interest on their loans to finance a swelling debt that’s been caused largely
by lower taxes on the wealthy.
This
means that a growing portion of your taxes are going to the
wealthy in the form of interest payments, rather than paying for government
services everyone needs.
So,
the real problem isn’t America’s growing federal budget deficit. It’s the
decline in tax revenue from America’s wealthy combined with
growing interest payments to them.
Both
are worsening America’s already horrific inequalities of income and wealth.
What
should be done? Reduce the debt by raising taxes on the wealthy.
This
back story needs to be told. Please spread the word.
©
2021 robertreich.substack.com
ROBERT REICH
is the Chancellor's Professor of Public Policy at the University of California,
Berkeley, and a senior fellow at the Blum Center for Developing Economies. He
served as secretary of labor in the Clinton administration, for which Time
magazine named him one of the 10 most effective cabinet secretaries of the
twentieth century. His book include: "Aftershock" (2011), "The
Work of Nations" (1992), "Beyond Outrage" (2012) and,
"Saving Capitalism" (2016). He is also a founding editor of The
American Prospect magazine, former chairman of Common Cause, a member of the
American Academy of Arts and Sciences, and co-creator of the award-winning
documentary, "Inequality For All." Reich's newest book is "The
Common Good" (2019). He's co-creator of the Netflix original documentary
"Saving Capitalism," which is streaming now.