To begin to understand the progressive tax’s immense potential to change things for the better, it is necessary to challenge many assumptions we have come to believe as simply the way things are. The world-wide economic crisis we are experiencing today and the names of those most responsible for it are in headlines day after day. They are the advocates of conservative economics which espouses lowering taxes for the rich and eliminating all government regulation. They promised that business and industry would thrive and that “all boats would float up together with the tide.” This was also known as “trickle down economics.” They argue that this allows “free enterprise” to maximize creativity and to produce the greatest good for the greatest number of people. they have had it their way for more than 30 years and it has proven itself to be totally false. It’s an interesting theory, nothing more.
Back about 1990 Dan Rather reported on a study by the Congressional Budget Office which the quantified how the money “given back” to the ultra-rich in Reagan’s tax reduction program. The largest category was “conspicuous consumption” – multiple estates, yachts, planes, expensive cars [many of them foreign and therefore benefiting our economy little]. The next largest category was investing the money – that would have gone into our Federal Treasury – overseas to start new businesses there. The direct result, Rather continued, was closing our own businesses and industries! Why? Because they could make far more profit for themselves abroad. It’s pure greed and it has cost our domestic workforce and our balance of trade dearly. The lowest category measured [and it sounded like they had to stretch way down to include it] was reinvesting it in our own country to create jobs, income, and taxes… That’s the truth of how “trickle down” really worked! It didn’t except for the very rich.
The results of the period of low taxes from 1980 to the present are proof that right wing theories and beliefs actually created the crisis we face today: The progressive concentration of wealth and more power to control our government and economy, the intentional closing of American business and industry and exporting them to markets where far higher profits could be made due to low incomes and no governmental regulations to speak of. They have gutted domestic regulations or refuse to fund [low taxes] critical programs involving health and safety, the environment, collective bargaining, consumer protection to name only a few. The majority of these programs were not profligate spending as they contend, but vital to the wellbeing of us all.
They continue to claim that the Democrats are “tax and spend” and have been responsible for our current debt level. This is simply not true: By far the biggest budget shortfalls have all been under the conservative control of the presidency and/or Congress. At the end of Carter’s term the total federal deficit was $0.828 trillion. Eight years later under Reagan, it more than tripled reaching $2.6 trillion. Carter’s budget deficit for 1978 was $40 billion for the year. Reagan’s deficits grew to $155 billion or nearly four times Carter’s. Clinton has been the only president since Reagan who actually achieved a balanced budget and reduced the federal debt. The claim of “tax and spend” Democrats does not hold water.
Then came Bush II: To complete the thought on tax and spend, none of the Republican presidents actually reduced spending. Spending has always gone up steeply under their leadership deThe strongly progressive income taxe their claim. “The 2009 budget proposed by President Bush predicts a net deficit of approximately 407 billion dollars, adding to a U.S. governmental debt of about $10.2 trillion. Bottom line: Since Reagan first began to reverse over sixty years of the strongly progressive income tax, the federal debt has risen from $0.8 trillion to over $10 trillion or is now 12.5 times larger. The cost of interest on the federal debt is currently $239 billion or 9.5% of the total government spending and rising rapidly. Had tax rates remained high, we would have eliminated most of that debt while adding almost 10% [the cost of debt] each year to pay for our government. With compound interest, this number is growing rapidly and will consume ever greater portions of federal revenue until projections say the debt service consumes the total revenue collected.
One of the hidden issues is that there is no discussion of actually paying off the federal debt. That is to say, long after the highways and schools bought through debt are gone, we will perpetually be paying the bill for things that no longer exist. Think about that for a while. We have laid that at the feet of our children. Is government the only major reason for the federal debt as conservatives argue? It’s part of the reason? Of course. The only major reason? Absolutely not. The most important reason is the unwillingness of the rich to pay their honest portion of the cost of government through the the strongly progressive income tax.
Tax cuts which have always heavily favored the highest income brackets have virtually bankrupted government on all levels. Any ability of government to reverse the trend by raising taxes are nearly impossible because conservatives who are in the minority have the ability to “veto” any legislation through the threat or use of the filibuster. This is an issue on which they have refused to budge and the Democrats have let them get away with it. The results of tax reduction has been the exact inverse of what conservatives promised. They have it exactly backwards and it’s time for progressives to stand up and say that clearly.
1.How does a progressive tax helpchange the way “business is done.”
Why does the The strongly progressive income tax have such a strong impact across the whole range of issues? If the ultra-rich have bought the reigns of power on almost every front, trying to accomplish any change which is not desirable to them has almost no chance of being enacted. And that includes sharing any of “their money” with the rest of us. Why do you suppose that the health reform bill quickly ran over a thousand pages? Clearly because the health care industry in had first say on every issue affecting their particular business.
A prime example of how attempts at reform have the opposite result is that the health care reform bill as it currently exists prohibits our government from negotiating with American drug companies for the same drug prices they charge to other countries. We are required to pay retail prices for what are clearly wholesale purchases. That’s wrong and it hurts us all. If the current bill is passed, it would make the huge profits they have now a matter protected by law.
And so it goes issue by issue. Even the bills we think are going to make badly needed reforms end up continuing “business as normal” only in a less obvious way. If you doubt these decisions are substantially “bought” please refer to the campaign funds tables which cover only a few issues. This issue transcends political parties. Both parties are addicted to huge campaign funds to seek or retain office and equally guilty for the way business in done “inside the beltway.” How does the progressive tax begin to make a dent in all such issues? By taking away the huge excess expendable income of the ultra-rich. If they don’t have it, they can’t spend it. Not to buy Lear jets and not to buy Congress.
Just to get the picture, imagine the highest tax bracket starting at $87 Million went as high as in the 1940-60s. At today’s tax rates [max. 35%], the highest 400 incomes keep a net after tax of more than $67.5 Million. At 90%, their net income would go down to a mere [?] $9.5 Million. For them that would be poverty leaving them barely able to pay the mortgages on their multiple estates, planes, yachts, country club, private boarding schools and the like. Think about this: The difference between today’s rate and the imagined 90% rate is $58 Million less than they had before. That’s money they don’t have to fill the campaign coffers of or otherwise bribe every candidate from dog catcher to President regardless of which party they represent, or to spend on million dollar ads designed to make us fear the public financing of elections, serious limitations on lobbying, etc. which threaten their hold on power.
2.The “dampening effect” on greed
In this light, the strongly progressive income tax has a “dampening effect” on the greed we see behind almost every headline like the recent announcement that Wall Street is giving itself an additional $20 billion in bonuses they clearly don’t deserve. If the ultra-wealthy no longer have the money to buy the process, fundamental change becomes possible – to have a government that is responsible to the citizens, not to corporate interests.. The "magic" of the strongly progressive income tax is that it works "behaviorally." When income reaches the level that it become obscene, the tax turns the lion’s share into government revenue. That result alone is moral without being moralistic: It has positive benefits on both ends of the issue: It increases badly needed government revenue on the one and on the other limits the power of the wealthy.
It doesn’t make any difference how they make “an obscene amount of money.” The more they make, the more the government takes back as revenue. It reduces the incentive of extreme greed and thereby reduces the needs for stifling and minute rules and regulations, people to audit compliance and lawyers and courts to enforce them. It is the current complexity of rules and enforcement that makes it difficult to imagine how tax policy change is possible. More laws, more loop holes, dodges and outright cheats. While you can’t legislate morality, other controls become less important when the motivation of greed to do anything in the name of profit is progressively taken away.
Suppose we reintroduce [yes, reintroduce] the strongly progressive income tax? This one regulation touches every aspect of our economy and government. It's simple and it's straight forward: The more they take, the more the government takes back. The reward diminishes progressively until it's hardly worth it. Let’s explore how this would work in more detail. If the CEO of the XYZ Corporation decides not to take additional income or bonuses, those monies would stay within their companies to be shared more equitably among all the “stake holders,” invested in R & D, reduced prices to clients/customers, becoming more competitive in the world market resulting in more domestic production, more exports and fewer imports improving our balance of trade, fully funded retirement, day care for employees, health and safety improvements, health care benefits, etc. That’s the opposite of what they want us to believe.
Or if the CEO takes the bonus, those monies mostly become the taxes to build, maintain and improve the commonwealth. Let’s examine this more closely. Say the CEO takes an additional $20 million in bonus – not at all uncommon today. And let’s say that we make the highest tax rate go to an unimaginable 99% on all income over $87 million. Finally, let’s assume his income is already above this threshold so that the entire $20 million would be taxed at the 99% rate. How would that shake out? Would it kill incentive? After all, the poor guy would only get $200,000 in after tax income. If that’s still not incentive, what is? Does that break your heart? That alone is more than 95% of us make – and that’s just his bonus! The other thing that would happen is the there would be an additional $19.8 million in federal revenues. Can anyone explain again why that is bad?
Hopefully, at some point the greedy begin to say “never mind.” Maybe other things can become incentive for them like enjoying the problem solving,… the creative process,… being a genuine and co-equal part of the team,… really caring about the quality of the product or service their company provides… keeping the price as affordable as possible,…caring about all the stake holders: the employees who help create the wealth,… the stock holders who provided the necessary financing,… the customers and clients who purchase their output,… the people who live next door to our plants and the places the raw materials come from….
The list of morally valid reasons to achieve are absolutely limitless. People who go into medicine, the law, governmental service, etc. for idealistic reasons just might be able to maintain that positive vision and actually serve their communities for its own sake as they intended if they stop focusing on profit alone. Maybe those who only go into these fields to make lots of money won’t – and they will be little missed. Maybe more noble goals would actually re-emerge if the strongly progressive income tax mitigated extreme greed. Maybe “high achievers” would find higher forms of motivation. It’s not promised. There is no utopia. No. Of course not. But, does progressive income tax go further than almost any other single step to correct the ills that plague us? Absolutely. This tax behaviorally changes the world we live in for the better.
One thing for sure, it no longer goes into their pockets or into campaign slush funds. This tax structure worked during the post WWII boom and it will work again if we can sell it. The time is right. Deep in our hearts, we believe people know this is one of the fundamental changes we need to heal our world. It touches almost everything in a corrective way.
Such reforms can’t be done timidly or piecemeal. the strongly progressive income tax is one of the fundamental change needed to reverse the destructive trends which sap our country. It is necessary before we can seriously hope to win the battle for issues crying for attention and resources. It is an issue which should and can unite all who care about the future of our planet regardless of our particular party or organization, or their concerns and beliefs. “A little yeast leavens the whole loaf.”
Therefore, the Fundamental Reform Network proposes that all people of good will make
the strongly progressive income tax one of their own single, non-negotiable criterion on which we base our next election.
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