For the first time since America’s rich started getting phenomenally richer, a White House budget is linking the concentration of wealth at the top of America’s economic ladder to pain at the middle.
By Sam Pizzigati
The budget President Barack Obama presented to Congress last week, if adopted in anything close to what the President has proposed, will cut taxes [1] for the typical American family by $800 a year and raise them for families in the top 1 percent by an average $100,000.
In an America accustomed to tax breaks — and oodles of them — for the nation’s richest, this tax increase on the privileged is striking many observers as something quite extraordinary. But even more extraordinary may be the rationale the Obama budget narrative makes for that increase.
The Obama budget does not position higher taxes on the wealthy, as President Clinton did in his first budget, as a distasteful but unavoidably necessary step to balance the budget.
The Obama budget, instead, rips “those at the commanding heights of our economy” for reckless behaviors that have “proven to be dangerous not only for their individual firms but for the economy as a whole.”
In strikingly stark terms, the new White House budget, entitled “A New Era of Responsibility,” goes on to hold the rich and their power responsible for making the “ladder into the middle class and beyond” ever “harder and harder to climb.”
Over recent decades, the budget’s background passages [2] explain, the investments in public goods and services that middle-class families need to succeed have been “sacrificed for huge tax cuts for the wealthy and well-connected.”
“There’s nothing wrong with making money,” the budget continues, “but there is something wrong when we allow the playing field to be tilted so far in the favor of so few.”
And the Obama White House offers plenty of numbers to document that tilting. The nation’s top 400 taxpayers, the new budget points out, averaged $263 million each in 2006, nearly quadruple their income in 1992. The net worth of America’s wealthiest 1 percent, the budget also notes, now exceeds the entire net worth of the bottom 90 percent.
“In fact,” the White House adds, the top 1 percent is now taking home “more than 22 percent of total national income, up from 10 percent in 1980.”
And this tremendous inequality has consequences, the Obama budget stresses, that go “far beyond one’s bank statement as several studies have found a direct correlation between health outcomes and personal income.”
By sheer coincidence, two of the world’s top epidemiologists — scientists who study the health of populations — drove that message home last week the day before the Obama budget’s release. The pair unveiled a new Web site [3] that details how deeply top-heavy concentrations of wealth and income undermine the health of rich, poor, and middle alike.
“To gain substantial improvements in the real quality of life of the populations of developed countries,” this new Equality Trust site explains, “it is necessary that differences in income and wealth are greatly reduced.”
The Obama budget plan takes aim at that goal with a variety of proposals that would, if Congress agrees, substantially shave America’s highest incomes.
As expected, the budget lets the Bush tax cuts on income in the nation’s top two tax brackets expire, as scheduled in current law, after 2010. Under the Obama plan, the top tax rate on income over about $370,000 would jump [4] from the current 35 percent to 39.6 percent, the top rate in effect during the Clinton years.
But the Obama budget then goes beyond the Clinton years by slicing the tax deductions high-income taxpayers can claim.
Right now, with the current top tax rate at 35 percent, the wealthy save 35 cents in taxes on every dollar they can deduct off their taxes. The Obama budget, besides upping the top tax rate to 39.6 percent, limits the deduction the wealthy can claim to 28 cents on the dollar.
These and other tax hikes on the incomes of America’s richest will raise, over the next ten years, an estimated $1 trillion [4].
Conservatives have, predictably, already begun blasting the new Obama budget as the first salvo in a “class war.” In reality, America’s financially favored should consider themselves fortunate. If Congress adopts the Obama budget, America’s highest incomes will still face less than half the 91 percent top tax rate in effect during the Republican Eisenhower administration in the 1950s.
How much more revenue could be raised from America’s ultra rich by moving the tax rate on top-bracket income closer to Eisenhower levels? Last week, the Washington, D.C.-based Institute for Policy Studies released [5] a seven-point tax-the-rich plan that would, among other steps, place an “economic emergency” 70 percent top tax rate on annual income over $10 million. The total IPS plan would raise over a half-trillion a year.
“Higher taxes on the wealthy, in our current economic situation, would actually have a positive impact,” Chuck Collins, a co-author of the IPS plan, noted last week. “Appropriately targeted, these taxes would dampen the speculative frenzy of the last several decades.”
Sam Pizzigati edits Too Much [6], the online weekly on excess and inequality.