I don’t blame anyone for being confused about the tax cut debates. I’ll make it simple.
Obama wants to raise taxes on the richest 2.1 percent of taxpayers.
The Republicans don’t.
The tax increase would yield $700-billion; which is a lot of money, even for the U.S. government. (Ways to relate to $700-billion are endless: the GDP of the Netherlands, or 10 times federal education spending.)
Rich families, on average earning one-half million dollars per year, would pay about $3,000 more in taxes, an amount that would hardly be felt. Paying that extra tax on already super high incomes can’t credibly affect well-being.
My co-blogger Diane Auer Jones repeats one of the most worn-out falsehoods in this debate. She wrote falsely that the top one percent “pay 70 percent of all taxes collected.” When we consider all the taxes we pay—sales, property, license, etc.—the top 1 percent pay just 22 percent of all taxes and hold about 20 percent of all U.S. income—which is a lopsided share of income and unprecedented since the go-go years in the 1920s. Considering the next-richest 4 percent of taxpayers paid 16 percent of the total taxes and received 14 percent of the total income means our tax system is practically a flat tax system—people pay the same percentage of their income on taxes.
No serious economist argues going back to the pre-Bush tax rates for the top 2 percent will disrupt work effort or lower productivity, or, actually, do anything at all but raise revenue.
Since the marginal utility or happiness from an extra 1 percent of income is worth a lot more to the middle class than millionaires we have a mighty good deal.
With very little or no disruption in overall national or personal well-being, we can generate $700-billion to pay off half of the war, the whole bank bailout, the stimulus, 20 years of higher education, secure retirement, pay off recession-debt, triple spending on R&D. Knock yourself out with the possibilites!
Without the tax hike, we aid and abet already perky markets for luxurious services, glittery baubles, and the other marginal stuff the rich buy. Consumer consultants say the rich search for the memorable, unique high-value services and fuel “connoisseurship.”
With a little less connoisseurship, we can pay for schools and fix bridges.
This time, the economics is simple. Rolling back the Bush tax cuts for the top 2% is the way to go.
(For the sources on tax impact, see Citizens for Tax Justice.)