Wrong on Principle, Wrong on the Facts
The Tea Party favorite Rep. Michele Bachmann (R-MN) is running for President—not much doubt on that. She says that the primary crisis facing the US today is the Federal deficits and debt. Her solution: make the middle class and lower class pay more in taxes.
She said as much on ABC’s Good Morning America on April 20, 2011. Here’s an excerpt of her conversation with host George Stephanopoulos:
REP. MICHELE BACHMANN: If we taxed 100 percent of what everyone made who make $250,000 or more — everything they made — that would get us about six months worth of revenue.
GEORGE STEPHANOPOULOS: But every bit helps, doesn’t it?
REP. BACHMANN: Well, but it wouldn’t be enough. I think that’s what’s shocking.
We could take 100 percent of the profits of every Fortune 500 company and that would give us 40 days worth of revenue. We could also take 100 percent of everything that the billionaires in this country own, and that wouldn’t be enough to solve the problem.
So it’s really a matter of having everyone involved. Part of the problem, George, is that 47 percent of all Americans pay virtually no federal income tax, so we need to broaden the base.
There it is: “we need to broaden the base”. Nearly half of all taxpayers get all their Federal income taxes back in the form of a refund. That’s many of you reading this post. Bachmann is clearly stating the principle behind the Tea Party: the rich pay too much in taxes, that’s what is holding back the economy. The solution? Make you and I pay more, make the public sector employees pay more, make welfare recipients pay more!
Despite the obvious cruelty of this principle (can I get a witness?), does it make economic sense? Does it work that way? We’ve tried it Bachmann’s way for a while. Let’s look at the data. We have cut taxes for the wealthy and corporations for about 30 years. How has our economy performed? The first decade of the 21st century saw overall Americans’ income go down for the first time since the 1930s, and that was before the great recession. Job growth in the Bush years was incredibly slow. At the same time, corporate profits soared.
A huge shift of wealth has gone to the richest Americans in the past generation. The richest 1% owned about 22% of the wealth in 1976, by 2010 it was nearly 40%! Has that wealth been re-invested in jobs and business expansion? Apparently not.
The tax codes at both the Federal and state levels have gotten less progressive, more flat. In my home state of Pennsylvania, the richest 1% only pay 5% of their income in local and state taxes, while the poorest 20% pay 11% of their income in taxes! Many state tax structures are getting more and more regressive—with the poor paying a higher percentage than the rich.
The top marginal tax rate for the wealthiest in the US used to be 90% (back in the 1950s), now it is 35%, and the Republicans in Congress want to reduce it to 25%. Corporate taxes used to be 33% of government revenue, now they are only 7%. We have indeed shifted the tax burden from the rich and corporations to the middle class. Look at what’s happened to our balance sheet.
Now, to be fair, other factors have affected government revenue. Also, there is a lot of waste in government spending that can be trimmed. That would need to be another post. But, many economists feel that the trickle-down theory simply has not generated sufficient jobs to declare it a success. According to the Financial Times, there are now more people living in poverty in the US than at any time in the last 50 years.
I also take issue with some of Bachmann’s assertions about the potential revenue of the rich and corporations. Let’s start with the rich individuals. Here’s her statement:
If we taxed 100 percent of what everyone made who make $250,000 or more — everything they made — that would get us about six months worth of revenue.
This may be factually true. But the context is missing. Six months’ worth of revenue would be about $1 Trillion. That amount would be the vast majority of this year’s budget deficit. Now, I don’t advocate taxing them at that rate. I’d advocate a progressive set of brackets getting up to about a 65% rate.
Here’s the second assertion:
We could take 100 percent of the profits of every Fortune 500 company and that would give us 40 days worth of revenue.
Sounds like a pittance, right? But the dollar amount would be $219 billion in revenue. That would solve most of the states’ collective budget shortfalls! Again, I’m not for 100% on those companies. However, I’m also not for giving billions in tax rebates to profitable companies like General Electric either! I would like to research her facts there. For 2009, the Fortune 500 lifted earnings to $391 billion (CNN Money). Also, any serious corporate tax increase would affect all profitable companies, not just the top 500. In 2010, corporate profits were surging, growing at annualized rates of over $1.6 Trillion (curious, that’s the same amount as the 2011 Federal deficit).
I am for common sense, progressive tax policies like we had 50 years ago. If corporations and households making $1 million or more were now paying federal income taxes at the same rate they paid 50 years ago, the Institute for Policy Studies calculates, the federal treasury this year would be collecting an additional $716 billion in revenue. That change alone would cut the Federal deficit in half.
Finally it was fascinating to hear Bachmann claim that it was President Obama’s idea to extend the tax cuts for the rich in December 2010. Candidate Obama wanted to raise the top rate from 35% to 39%. He couldn’t do it because he lost so many votes in the Congressional election of 2010. It wasn’t his idea; it was the Republicans’ idea.
Also I see what some might call generational warfare going on here. The huge increases in Medicare costs to the individual will only affect persons under the age of 55. What a cynical ploy to avoid the tsunami of angry senior citizen voters! We’ll make the young pay the vast majority of this bill.
Of course Stephanopolous didn’t raise any of these points. He also didn’t mention a poll showing a vast majority of Americans want the Afghan War to end. Stopping the wars and making common sense defense cuts (see Time magazine’s recent issue) could also produce savings in the hundreds of billions per year.
I disagree that the worst crisis facing the country is the deficit. Jobs, wars, health care costs and soaring poverty hit us much harder. The insanity in the tax codes favoring the wealthy exasperates many of those other problems. Above all, it seems that greed is our problem. Government can’t solve that, but it can make some rational decisions to have the greedy pay a bit more to give back to the communities that they take so much from.
