All this week we are going to hear about Republicans arguing with Democrats about what to do about the budget-busting Bush tax cuts that are set to expire at the end of this year. Republicans, fulfilling their role as funnelers of trillions of dollars in tax cuts to the very wealthiest Americans, are of course arguing for permanent extensions of the Bush tax cuts to everyone – including those earning over $250,000. President Obama and most Democrats would like to see the tax cuts extended temporarily, but only for those earning under $250,000. Without the compensation limit, the treasury would lose around $750 billion in tax revenues over the next decade.
Yesterday’s news story suggests that the “compromise” may be to raise the threshold from $250,000 to one million dollars.
Maybe we should put this in perspective by looking back to a similar time. Here is an excerpt from H.W. Brands’ biography of Franklin Delano Roosevelt, titled Traitor to His Class:
As for taxes, Roosevelt characterized a tax increase as “one of the most powerful weapons in our fight to stabilize living costs.” Raising taxes would reduce Americans’ discretionary income and thereby diminish the upward pressure on prices. It would also redistribute the burden of the war. The wealthy were having a wonderful war: profits and dividends were higher than in more than a decade. Roosevelt proposed to eliminate loopholes that let the rich off easily and to boost tax rates sharply at the upper end. “In the higher income brackets, the tax rate should be such as to give the practical equivalent of a top limit on an individual’s net income after taxes, approximating $25,000. [$336,963 adjusted for inflation.]” This was strong stuff, amounting to a confiscatory marginal rate on the highest incomes. But it was no more than what he proposed for corporations. “We must recapture through taxation all wartime profits that are not necessary to maintain efficient all-out war production.”
Before the war, Roosevelt had defended similar, albeit less ambitious, measures as promoting economic and social equality. He still emphasized equality, but with a wartime twist. “Such provisions will give assurance that the sacrifices required by war are being equitably shared.” Redressing inequality was crucial, now and for the future. “Next to military and naval victory, a victory along this economic front is of paramount importance. Without it our war production program will be hindered. Without it we would be allowing our young men, now risking their lives in the air, on land, and on the sea, to return to an economic mess of our own making.”
…The president didn’t quite get the confiscatory rates he wanted on incomes over $25,000, but he came very close. The Revenue Act of 1942 pushed personal tax rates to a marginal maximum of 88 percent even as it reduced exemptions and nearly tripled the number of people subject to income taxes. A special “Victory Tax” took 5 percent of all incomes over $624 [$8,411 adjusted for inflation], with a portion to be remitted after the war was won.
Granted, economic times in 1942 were not exactly the same as they are in 2010. In 1942 the country was recovering from a deep depression and had been involved in an expensive world war for about one year. The war effort had provided many people jobs for a couple of years, and inflation was on the rise. Unlike then, as we begin to recover from The Great Recession, inflation is not an issue because unemployment remains high resulting in lower consumer demand for goods and services. Deflation is the greater concern.
In 1942 congress raised the top marginal rate to 88%. The top rate now is 35%. Today’s Democrats want to raise it to 39.6%. In 1942, the threshold for income subject to the highest rate was $336,963 in today’s dollars. Republicans would like to hold the top marginal rate at 35% and, if they have to compromise, might agree to a repeal of the Bush tax cuts on incomes over $1,000,000. They’ll probably filibuster the bill if the income level falls below that.
If we had a responsible president and congress from 2001 through 2008 we wouldn’t be having this debate. Why? Because only a servant like Bush would have sacrificed the federal budget and the economy to shovel more money to the super rich – his “base.” Unlike Roosevelt, Bush never asked the rich to sacrifice anything to pay for his “war on terror” that has gone on far longer than World War II. And since Bush declared war on a noun instead of a country or an organization, the war will go on forever. The very rich should have been asked to sacrifice by paying more in taxes to fund the never-ending war. Instead, Bush gave them huge tax cuts as their incomes rose dramatically and everyone else saw little or no gains. As a result of Bush’s policies favoring the rich, the economy has staggered, unemployment is high, and income inequality has reached a peak never before seen in our history.
Now is not the time to extend insane tax breaks for people who currently receive 80% of all income earned in this country. Now is the time for them to start paying more. Their tax dollars are needed to extend unemployment benefits, provide jobs through infrastructure rebuilding projects, and fund our social safety nets. Republicans aren’t going to let that happen because it would go against their short-term political goal of reducing deficits now when we should be spending to spur demand for goods and services; and it would go against their long-term goal of dismantling all government entitlement programs so that even more money can go to the rich.
If congress is serious about growing the economy in ways that provide jobs and decreasing long-term deficits without leaving people stranded without basic services, then they need to raise taxes on the rich. The rich have the most of the money. The Democrats should be fighting hard to raise their taxes, but it looks like they are once again going to compromise their principals to satisfy the demands of a pugnacious minority party.