Tax Fairness Won’t Reduce Inequality

Reacting to and attempting to co-opt the Occupy Wall Street movement, President Obama used his 2012 State of the Union address to discuss what he now calls “the defining issue of our time”—the growing gap between rich and poor.

“We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by,” Obama said. “Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.”

No doubt, the long-term trend toward income inequality is a major flaw of the capitalist system. From 1980 to 2005 more than 80 percent in the gain in Americans’ incomes went to the top one percent. This staggering disparity between the haves and have-nots has created a permanent underclass of underemployed, undereducated and alienated people who often turn to crime for survival and social status. Aggregation of wealth into fewer hands has shrunk the size of the U.S. market for consumer goods, prolonging and deepening the depression.

How can we make the system fairer?

Liberals are calling for a more progressive income tax: i.e., raise taxes on the rich. Obama says he’d like to slap a minimum federal income tax of 30 percent on individuals earning more than $1 million a year.

Soaking the rich would obviously be fair. GOP frontrunner/corporate layoff sleazebag Mitt Romney earned $59,500 a day in 2010—and paid half the effective tax rate (13.9 percent) of that paid by a family of four earning $59,500 a year.

Fair, sure. But would it work? Would increasing taxes on the wealthy do much to close the gap between rich and poor—to level the economic playing field?

Probably not.

From FDR through Jimmy Carter it was an article of faith among liberals that higher taxes on the rich would result in lower taxes on the poor and working class. This was because the Republican Party consistently pushed for a balanced budget. Tax income was tied to expenditures, which were more or less fixed—and thus a zero-sum game.

That period from 1933 to 1980 was also the era of the New Deal, Fair Deal and Great Society social and anti-poverty programs, such as Social Security, the G.I. Bill, college grants and welfare. These government handouts helped mitigate hard times, gave life-changing educational opportunities that allowed class mobility, closing the gap between despair and hope for tens of millions of Americans. As the list of social programs grew, so did the tax rate—mostly on the rich. The practical effect was to redistribute income from top to bottom.

Democrats think it still works that way. It doesn’t.

The political landscape has shifted dramatically under Reagan, Clinton and the two Bushes. Budget cuts slashed spending on student financial aid, food stamps, Medicaid, school lunch programs, veterans hospitals, aid to single mothers. The social safety net is shredded. Most federal tax dollars flow directly into the Pentagon and defense contractors such as Halliburton.

As the economy continues to tank, there’s only one category to cut: social programs. “Eugene Steuerle worked on tax and budget issues in the Reagan Treasury Department and is now with the Urban Institute,” NPR reported a year ago. “He says one reason no one talks about preserving the social safety net today is that lawmakers have given themselves little choice but to cut it. They’ve taken taxes and entitlements, such as Social Security and Medicare, off the budget-cutting table, so there’s not much left.”

Meanwhile, effective tax rates on the wealthy have been greatly reduced. Which isn’t fair—but not in the way you might think.

Taxes on middle-class families are at their lowest level in 50 years, according to the Center on Budget and Policy Priorities, a liberal thinktank.

What’s going on?

On the revenue side of the budget equation, the poor and middle-class have received tiny tax cuts. The rich and super rich have gotten huge tax cuts. Everyone is paying less.

On the expense side, social programs have been pretty much destroyed. If you grow up poor there’s no way to attend college without going into debt. If you lose your job you’ll get 99 weeks of tiny, taxable (thanks to Reagan) unemployment checks before burning through your savings and winding up on the street.

Military spending, on the other hand, has soared, accounting for 54 percent of federal spending.

In short, we’re running up massive deficits in order to finance wars in Afghanistan, Iraq, and so on, and so rich job-killers can pay the lowest tax rates in the developed world.

I’m all for higher taxes on the rich. I’m for abolishing the right to be wealthy.

But liberals who think progressive taxation will mitigate or reverse income inequality are trapped in the 1960s, fighting the last (budget) war in a reality that no longer exists. The U.S. government’s top priority is invading Muslim countries and bombing their citizens. Without big social programs, invading Muslim countries and bombing their citizens is exactly where every extra taxdollar collected from the likes of Mitt Romney would go.

The only way progressive taxation can address income inequality is if higher taxes on the rich are coupled with an array of new anti-poverty and other social programs designed to put money and new job skills directly into the pockets of the 99 percent of Americans who have seen no improvement in their lives since 1980.

You have to rebuild the safety net. Otherwise higher taxes will swirl down the Pentagon’s $800 toilets.

If you’re serious about inequality, income redistribution through the tax system is only a start. Whether through stronger unions or worker advocacy through federal agencies, government must require higher minimum wages. It should set a maximum wage, too. A nation that allows its richest citizen to earn ten times more than its poorest would still be horribly unfair—yet it would be a big improvement over today. Shipping jobs overseas must be banned. Most free trade agreements should be torn up. Companies must no longer be allowed to layoff employees before eliminating salaries and benefits for their top-paid managers—CEOs, etc.

And a layoff should mean just that—a layoff. First fired should be first rehired—at equal or greater pay—if and when business improves.

Once a battery of spending programs targeted to the 99 percent is in place—permanent unemployment benefits, subsidized public housing, full college grants, etc.—the tax code ought to be radically revamped. For example, nothing gives the lie to the myth of America as a land of equal opportunity than inheritance. Aristocratic societies pass wealth and status from generation to generation. In a democracy, no one has the right to be born into wealth.

Because everyone deserves an equal chance, the national inheritance tax should be 100 percent. While we’re at it, why should people who inherited wealth but have low incomes get off scot-free? Slap the bastards with a European-style tax on wealth as well as the appearance of wealth.

Now you’re probably laughing. Even Obama’s lame call for taxing the rich—so the U.S. can buy more drone planes—stands no chance of passing the Republican Congress. They’re empty words meant for election-year consumption. Taking income inequality seriously? That’s so off the table it isn’t even funny.

Which is why we shouldn’t be looking to corporate machine politicians like Obama for answers.

(Ted Rall is the author of “The Anti-American Manifesto.” His website is tedrall.com.)

COPYRIGHT 2012 TED RALL