Reich Says America Needs to Use Tax System to Transfer Wealth From Top Earners to Bottom Two-Thirds

Robert Reich, writing in the New York Times, recommends that we use the tax system to transfer wealth from top earners to earners in the bottom two-thirds of income.  Reich says, “The binge seems to be over. We’re finally reaping the whirlwind of widening inequality and ever more concentrated wealth. The only way to keep the economy going over the long run is to increase the wages of the bottom two-thirds of Americans.”

Specifically, Reich is calling for, “a larger earned-income tax credit, financed by a higher marginal income tax on top earners.”

Reich says, “We’re sliding into recession, or worse … normal remedies are not likely to work this time, because this isn’t a normal downturn.”  He says, “The only lasting remedy, other than for Americans to accept a lower standard of living and for businesses to adjust to a smaller economy, is to give middle- and lower-income Americans more buying power — and not just temporarily.”

Excerpts from the article:

  • The underlying problem has been building for decades. America’s median hourly wage is barely higher than it was 35 years ago, adjusted for inflation. The income of a man in his 30s is now 12 percent below that of a man his age three decades ago. Most of what’s been earned in America since then has gone to the richest 5 percent. The problem has been masked for years as middle- and lower-income Americans found ways to live beyond their paychecks. But now they have run out of ways.
  • The first way was to send more women into paid work. Most women streamed into the work force in the 1970s less because new professional opportunities opened up to them than because they had to prop up family incomes. The percentage of American working mothers with school-age children has almost doubled since 1970 — to more than 70 percent. But there’s a limit to how many mothers can maintain paying jobs.
  • So Americans turned to a second way of spending beyond their hourly wages. They worked more hours. The typical American now works more each year than he or she did three decades ago. Americans became veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.
  • But there’s also a limit to how many hours Americans can put into work, so Americans turned to a third way of spending beyond their wages. They began to borrow. With housing prices rising briskly through the 1990s and even faster from 2002 to 2006, they turned their homes into piggy banks by refinancing home mortgages and taking out home-equity loans. But this third strategy also had a built-in limit. With the bursting of the housing bubble, the piggy banks are closing.
  • The answer is not to protect jobs through trade protection. That would only drive up the prices of everything purchased from abroad. Most routine jobs are being automated anyway.  A larger earned-income tax credit, financed by a higher marginal income tax on top earners, is required. The tax credit functions like a reverse income tax. Enlarging it would mean giving workers at the bottom a bigger wage supplement, as well as phasing it out at a higher wage. The current supplement for a worker with two children who earns up to $16,000 a year is about $5,000. That amount declines as earnings increase and is eliminated at about $38,000. It should be increased to, say, $8,000 at the low end and phased out at an income of $46,000.
  • Over the longer term, inequality can be reversed only through better schools for children in lower- and moderate-income communities. This will require, at the least, good preschools, fewer students per classroom and better pay for teachers in such schools, in order to attract the teaching talent these students need.
  • These measures are necessary to give Americans enough buying power to keep the American economy going. They are also needed to overcome widening inequality, and thereby keep America in one piece.

From the New York Times, “Totally Spent,” by Robert B. Reich, a professor of public policy at the University of California, Berkeley, author, most recently, of “Supercapitalism.”

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6 comments to Reich Says America Needs to Use Tax System to Transfer Wealth From Top Earners to Bottom Two-Thirds

  • Joe C.

    Isn’t this already happening? Or do you mean the top 1/3 should be paying MORE than 70% of income taxes?

  • “to give middle- and lower-income Americans more buying power — and not just temporarily”

    Yeah, that’ll do wonders for inflation and the price of the dollar. Not.

    How about this – people that want to buy more stuff go to college or a trade school, get a better job and earn money like the rest of us.

  • T. Ruddick

    Ah, the old tired argument that the people who control 90% of the wealth are ill-treated by being required to pay 70% of the taxes…

    Look, Reich has a good idea, but the notion that taxation is the right way to achieve social equity is wrong. Taxation is the means to fund our system of government, and any attempt to make it into anything else is wrong-headed and counterproductive. We already waste milliions annually on tax codes that are so complex that no one truly understands them; we need instead to have a tax code that says “this income = these taxes” or “this property = these taxes” with NO exemptions, breaks, loopholes, deducations, etc. Such a system would permit our government to predict a revenue stream more reliably.

    Not to say that government should not attempt to promote certain activites “for our posterity” but that promotion should be done via grants–in that way, the money invested will be budgeted, and all comers will have an equal opportunity to apply for the governmental boon.

    Taxes are to raise revenue, period. When you start using taxes as a means to encourage certain activities, it’s like using the horse’s feed bag as a means to urge it forward on the race track.

  • Stan Hirtle

    Joe C must have forgotten the effects of the Bush tax cuts, enormously loaded toward the rich. It is amazing that Bush was able to sell those. Of course he has a well disciplined party and 9/11’s trauma gave him a lot of room to roam. He then borrows immense sums to finance the war, let alone the future costs like replacing all the stuff than gets worn out or blown up. And of course it looks like the US plans to keep those permanent bases in Iraq occupied. It has done “military Keynesianism” using war spending to stimulate the economy. Why is that better than giving more money to people at the lower end of the economy? Or spending it on health care, education and infrastructure in America? The gravy train of the Bush tax cuts needs to end.

    Americans don’t seem to feel they can do much about abuses by the wealthy. Part of that may be a legacy of the Cold War where the power of owners became linked to patriotism in America. In addition the news media, which function as a public square community where people test political options, have become more concentrated as part of corporate conglomerates that are supposed to contribute to the bottom line. And of course politicians who take positions against corporate business power can’t raise the money to get elected. Government has been not enough for the benefit of the people and too much for sale. Many possible solutions to problems, such as national single payer health insurance, are not on the table for this reason. Generally people accomodate to powers they don’t believe they can do anything about. Who thinks it is possible to spread, democratize if you will, the power over wealth?

    Going to school only helps you earn more if there is a better paying job at the end of it. Where are these jobs? As Reich points out, wages haven’t kept up. Capital has become more mobile than labor and moved seeking cheap labor. Cheap labor has also moved into America and our disfunctional immigration system makes people illegal and without rights so that they are vulnerable to exploitation. To avoid this problem we need to give everyone rights and improve the world economy so people can make a living at home.

    Another difference is the relative powerlessness of labor unions as a result of how politicians that are financially beholden to business staff the agencies that enforce labor laws. Busting unions is a profitable business decision.

    A lot of big wealth has not been made by education, hard work or productivity but by gaming the system. Much the money that was made in the mortgage debacle was made by commissioned salespeople who got a cut of the bad loans they made, Wall Street investment bankers who got a large cut for “securitizing” the loans, and hedge funds who essentially speculate in the market. This comes at the cost of the hundreds of thousands losing their homes, often the main or only investment they have, as well as the focus of their hope in the America dream.

    Reich was actually in Clinton’s cabinet, but was allowed to accomplish little. All that he says makes sense.

  • Greg Hunter

    Not to say that government should not attempt to promote certain activites “for our posterity” but that promotion should be done via grants–in that way, the money invested will be budgeted, and all comers will have an equal opportunity to apply for the governmental boon.

    I think that is absolutely the point finding someone who will provide a framework of “good guidance” for our posterity. I would love to got to block grants, so we can try new things in each state and see what works.

    When you start using taxes as a means to encourage certain activities, it’s like using the horse’s feed bag as a means to urge it forward on the race track.

    Precisely, we elect people who put on the feed bag and do not know what it takes to win a horse race.

    A good beginning, lots of training, good nutrition and a good pilot.

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