To Save the Republic, Tax the Rich

For all the laid-off "Joe the Plumbers" who share the Right's fury
about the "class warfare" of imposing higher taxes on millionaires,
there is this hard truth: the rich don't need as many of you as they
once did - and taxing the rich may be the only way to make the economic
system work for you.

Indeed, the surplus labor of everyone from factory workers to
bookkeepers is fast becoming the biggest structural problem facing U.S.
society. Even an economic "recovery" is unlikely to put millions of
unemployed Americans back to work, at least in any meaningful way.

That's because in today's brave new world of high technology and global
commerce, many blue-collar and white-collar jobs can be done more
cheaply through computerized automation or by low-cost overseas labor
than by American middle-class workers regardless of how much retraining
they get.

So, whenever the
current recession ends, many Americans who lost their jobs or had to
take severe pay cuts are not likely to make up lost ground.
Unemployment and under-employment are almost certain to stay high, and
those lucky enough to have jobs will have to work harder, faster and
longer than before.

Already,
most of us scramble to make ends meet, with fewer protections in the
work place as unions shrink, with the 40-hour work week disappearing
for many, with cell phone and e-mails putting us on call virtually
24/7, and with retirements postponed sometimes indefinitely.

This era's great irony may be that those of us who grew up watching
"The Jetsons" or similar representations of the future didn't see this
bleak future coming. We thought technological progress was going to
mean more free time for the human race - to play with the kids, to read
a book, to travel or to just take it easy.

Instead, technology has contributed to making our lives more slavish
and more brutish, especially when job loss is combined with lost health
benefits and endless pressure from bill collectors.

Yet, while the middle- and working-classes have seen the American dream
recede, the upper stratum of the super rich have watched the benefits
of the high-tech global economy flow disproportionately into their
stock portfolios and trust funds, creating wealth disparities not seen
in the United States since the age of the robber barons.

The tiny fraction at the top - the richest 0.01 percent - has fattened
its collective income by 400 percent, adjusted for inflation, over the
past two decades. While this trend was accelerating from 1980 through
2008, the Republican-dominated federal government aided the wealth
concentration by cutting income tax rates for the wealthy.

Prior to Ronald Reagan's presidency, the top marginal tax rate
(the percentage that the richest Americans paid on their top tranche of
income) was about 70 percent. By the time, George H.W. Bush left office
in 1993, the marginal rate was at 31 percent - and the U.S. budget
deficit was exploding.

To get
the deficit under control, President Bill Clinton and the
Democratic-controlled Congress took the politically dangerous step of
raising the top marginal rate to 39.6 percent, a move that contributed
to the Republican congressional takeover in 1994.

Still, the Clinton tax hike helped get the federal budget back into
balance and led to a projected surplus so large that policymakers
fretted about the complications that might result from the U.S. debt
being completely paid off. However, when George W. Bush took
power in 2001, he immediately resumed the Reagan-esque push to reduce
taxes, especially on the rich.

Under Bush-43, the top marginal rate was cut to 38.6 percent and then
to 35 percent, contributing to another record surge in the federal
deficit. By the time Bush left office in 2009, the U.S. government was
hurtling toward a $1.2 trillion deficit and the Wall Street financial
bubble - inflated in part because of huge bonuses and other
compensation - had burst.

Yet, President Barack Obama and the congressional Democrats feared a
replay of Election 1994, so they passed a $787 billion stimulus package
and implemented costly bailouts for the Wall Street banks without
seeking any immediate tax increase. The result has been a further
worsening of the federal deficit - and the Republicans accusing the
Democrats of fiscal irresponsibility.

Any discussion of raising taxes on the rich - like the House plan to
apply a surtax on the wealthy to help pay for health-care reform -
brings howls of protest from protectors of the elites. The Washington
Post's neoconservative editorial page denounced the surtax as a case of
"soak-the-rich."

However, even the Post's editors acknowledged that "a serious case [could] be made that the U.S. income tax system should be more progressive.

"The
average rate paid by the top 1 percent of households shrank from 33
percent in 1986 to about 23 percent in 2006. At the same time, the
share of adjusted gross income claimed by that highest-earning sliver
of American society doubled, from 11 percent to 22 percent."

Joe the Plumbers

Beyond the predictable defenders of privilege, however, many average
Americans still support Reagan-esque tax cuts even when those policies
have amounted to "class warfare" against the middle- and
working-classes as well as future generations who are getting stuck
with the bills.

This is where
"Joe the Plumber," a mid-30-ish Ohio man named Joe Wurzelbacher, comes
in. Though Wurzelbacher wasn't even a licensed plumber
last year, he became Sen. John McCain's symbol of an American everyman,
someone whom the 72-year-old McCain called "my role model."

In the closing days of Campaign 2008, Wurzelbacher launched his strange
rise to national stardom by chatting along a rope line with Barack
Obama about his tax proposals, specifically Obama's plan to lower taxes
on middle-class Americans and raise them on people earning more than
$250,000.

Wurzelbacher said
he was considering buying his boss' company, which he thought might
make slightly more than $250,000 and thus might see a rise in taxes
under Obama's plan.

Obama
responded by noting that any tax increase in that case would be slight
and arguing that his tax plan would help America's embattled middle
class because it would "spread the wealth." (Later, Obama noted that
the vast majority of small businesses don't clear $250,000 and almost
no plumbers do.)

Nothing in
the Obama-Wurzelbacher exchange was very remarkable. In effect, Obama
was reiterating the century-old case for a progressive income tax that
assesses higher rates on the well-to-do than on those with modest
incomes.

It was a concept
famously advocated by McCain's earlier Republican role model, President
Theodore Roosevelt, who in his New Nationalism speech of 1910 sounded far more radical than Barack Obama.

"The
really big fortune, the swollen fortune, by the mere fact of its size,
acquires qualities which differentiate it in kind as well as in degree
from what is possessed by men of relatively small means," Roosevelt
said.

"Therefore, I believe in
a graduated income tax on big fortunes, and in another tax which is far
more easily collected and far more effective, a graduated inheritance
tax on big fortunes, properly safeguarded against evasion, and
increasing rapidly in amount with the size of the estate."

However, McCain - who apparently had swapped his old role model (Teddy
Roosevelt) for his new one (Joe Wurzelbacher) - accused Obama of
"socialism" because of Obama's support for rolling back tax cuts for
the rich.

McCain's campaign
began labeling Obama the "redistributionist-in-chief," a charge that
the Democrats finessed during the final days of the campaign but appear
to still fear. The Obama administration has shied away from seeking
outright repeal of Bush's tax cuts, instead favoring letting some of
them just lapse next year.

That reluctance to tackle the issue of tax increases - and Obama's
practical political decision during the campaign not to aggressively
defend his "spread the wealth" idea - meant that the argument about the
need for a greater government role in diverting some wealth from the
top downward has been deferred.

Important Debate

However, it may be the most important debate for the future of the
United States and the health of the American Republic. If the
government doesn't intervene through its taxing authority to
redistribute some wealth that now is concentrating among the
ultra-rich, programs aimed at protecting the environment, improving
education and providing health care likely will fail.

The American public already is resisting the idea of expanding the
federal debt, which translates into passing on the bills to future
generations. Obama also has promised not to raise taxes on
hard-pressed, middle-income families.

The only other choices are to delay urgent action on the environment,
education and health care or to raise tax rates on the rich, the likes
of those Goldman Sachs employees who - after the bank benefited from
federal bailouts - are expecting $900,000 in average compensation this year.

However, beyond the populist outrage over the size of Wall Street
bonuses and other excesses of the super-rich is the simple logic that
the federal government is the only entity big enough - and the tax
structure the only means powerful enough - to divert some of the wealth
at the top downward to pay for needed programs and to create needed
jobs.

Government spending
also is the only practical way to redistribute the extraordinary wealth
created by technological productivity and global trade so those twin
developments can benefit the broader population and keep the economic
wheels spinning.

This
spending could focus on pressing needs, like renewable energy, public
transportation, improved education and accessible health care. But of
equal importance, it could provide today's "surplus workers" with
meaningful work so they can pay their bills and support their families.

A
more equitable distribution of wealth could benefit the Republic, too,
since politicians might be less enthralled to big contributors and big
business.

As Justice Louis
D. Brandeis noted more than 60 years ago, "we can have democracy in
this country, or we can have great wealth concentrated in the hands of
a few, but we can't have both."

But first the American people will have to decisively reject another
famous quote, Ronald Reagan's paradigm that "government is not the
solution to our problem; government is the problem."

The public will have to recognize that sometimes the government can be a necessary part of the solution.