12/12/2012 4:15 PM ET|
Smarter ways to tap the rich
Simply letting the Bush tax cuts for the wealthiest Americans expire won't fix the fiscal mess. Two creative ideas: Public-private infrastructure projects and a one-time, 26% wealth tax.
The fiscal cliff negotiations in Washington have hit an impasse with Republicans and Democrats entrenched in familiar positions. Democrats want tax hikes on the rich. Republicans want cuts to entitlement programs.
For many, the debate has boiled down to "Why don't the rich pay their fair share?" Taxes on the wealthy are the one policy tool that the majority of Americans support.
As I discussed last week (see "Why not jump off the fiscal cliff?"), ending the Bush tax cuts for the rich (worth around $80 billion a year) or ending them plus limiting deductions, as President Barack Obama has proposed (around $160 billion), won't solve the country's fiscal woes. It won't even come close. The fiscal cliff adds up to a $720 billion economic hit next year, and most of that comes from the expiration of the Bush tax cuts for the middle class.
But the rich do have an important role in getting us out of this mess. Below, I outline two ways the upper crust can break us out of this funk and return us to the path of prosperity.
We need to put their money to work if American jobs are going to return. But income tax hikes aren't the best way to do it.
2 problems, 2 solutions
In another recent column, (see "Is the economy a lost cause?"), I lamented the slow decline in America's economic vigor, with measures such as labor productivity and per-capita growth of gross domestic product having stalled. U.S. society has become increasingly overburdened by the cost of senior care and old debts, and, as a result, we're now neglecting critical investments in capital, infrastructure and young families.
This is unsustainable. If America's potential growth rate -- its economic speed limit -- continues to drop, the tax base will continue to shrink even as rates rise. Reliance on government welfare programs will grow, and the system will collapse on itself.
It's unacceptable in a country as prosperous as ours to have families killed by falling bridges and failing levees. It's unacceptable for time to be wasted on commuting nightmares on par with those in Romania and Hungary. And it's unacceptable to see America's productive capital base -- its machinery and equipment -- rust away due to a lack of business confidence and a corporate system that encourages companies to hoard profits overseas.
For the sake of discussion, let's focus on infrastructure. What's the scale of the problem? California has the country's worst road congestion and faces a $100 billion project backlog. Nearly three-fourths of the major roads in Massachusetts are in poor or mediocre condition. More than half the bridges in Rhode Island are structurally deficient or functionally obsolete. Overall, the American Society of Civil Engineers gave the country's infrastructure a "D" grade and recommended an investment of $1.6 trillion over the next five years.
That's point one.
Point two is that, for a variety of reasons, economic growth has become more unequal over the past few decades. Part of it is technological change. Part of it is rapid globalization and the downward wage pressure created by an army of cheap foreign labor. The result has seen benefits accrue disproportionately to the top.
According to Federal Reserve data, median household wealth for the middle class (in 2010 dollars) has actually fallen from $70,200 in 1989 to $65,800 in 2010. For the top 10% in terms of income, it has increased from $655,200 to nearly $1.2 million over the same period. It's the same story with income: Median income for the middle class dropped to $43,400 in 2010 from $45,800 in 1989, but it rose to $205,300 from $175,900 for the top 10%.
Research by Marianne Bertrand and Adair Morse, both of the University of Chicago, finds that as the rich spent lavishly with their new wealth, everyone else tried to keep up. Coach (COH) bags for everyone!
That, according to research from the International Monetary Fund, drove people into debt -- mortgages to chase the housing bubble, consumer credit, and now, student loans. Government played a role, too, borrowing to fund social programs as people voted to increase their welfare via the tax code and public spending.
As a result, household and government debts have surged, and they now hinder economic growth. Household debt as a percentage of disposable income went from around 70% in the 1970s to a peak of 134% in 2007 to 113% now. Government debt as a percentage of GDP has increased from around 30% in 1980 to near 100% now.
The reason the Federal Reserve's aggressive efforts to stimulate the economy haven't had a bigger impact is because people are unwilling or unable to increase borrowing. The government is focused on budget cutbacks, not investment. And households are focused on shedding debt to find their way back to a sustainable standard of living.
Moreover, the academic research shows that not only does higher debt limit economic vitality, but it increases the risk of financial crisis as well.
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No one of any honesty needs billions stashed in bank accounts. The Government (American system of currency) owns, protects and backs it's value. It can change security features to keep drug lords and counterfeiters from manipulating it. One way could be an expiration date on all big bill bank notes ( 20, 50, 100 etc.).
If all currency piled in criminal suitcases throughout the world, had to be turned in taxed and accounted for after a certain period of time, you would see more revenue circulated and stimulating our economy !
Wealth tax doesn't teach people to be more responsible with their money. In fact, it teaches people the opposite. It teaches people might as well not save, its better to spend your money and not have it taken away later. The idea of a wealth tax is punishing those who have actually saved their money, and would ruin the nation for other reasons. The 26% tax you want on wealth would be taking the money parents have saved for their children's college, or weddings. Even worse, it would be taking a great deal of retirement savings from people who have worked their entire lives in order to maybe, someday, actually not have to work when they're 80. The idea of this is simply ridiculous. At least raising taxes people will know in advance, and can budget accordingly. A wealth tax would be taking money that people have already had taxes taken out of, and been able to count and budget on. They have saved for big life events that are going to happen, and emergencies. A wealth tax would cause more problems than it would solve. You seem to assume that the people in the 10% are all billionaires who can go own after this wealth tax. But actually, I have read that to be in the top 10% you only have to make $250,000 a year. In urban areas, and even rural, a 26% wealth tax would ruin these people and their futures.
stup, I'm with you.....way to many riders... who need to join the pullers of this economic wagon!
An elegant, concrete, simple solution to our
FISCAL PROBLEM (but not easy to get congress to enact):
28th constitutional amendment: Yearly Balanced Budget Required
Debt to GDP ratio
>35% = balanced
<35% = allow 10% extra yearly spending
The beauty is that congress can be bypassed:
The Constitution provides that an amendment may be proposed either by the Congress with a two-thirds majority vote in both the House of Representatives and the Senate or by a constitutional convention called for by two-thirds of the State legislatures.
It will take only one state to get the ball rolling!!!!!!!!!!!!!!
Write your state congressman/woman!!!!!!!!!!!!!
The problem with debt (governments, businesses, family members, etc) is that those that need to bail the debtors out never agreed with how the money was spent to begin with. The whole tax system needs to be turned inside out - the government should have to make their case for why they need money (maybe like a public radio pledge drive), then sit back and see how much comes in, and then manage what comes in. When the money runs out. It runs out. That way private liabilities are always limited.
Mr Military Commander, you can kick 100 million worth of a$$. That's all the people are willing to give. If you need more you'll have to plead your case.
Taxes on wages are the greatest evil of our American Republic. When government is free to steal from you, there are no limits to waste and abuse in government. If a person chooses to work extra hours or two jobs in order to better provide for themselves or their family, they should not be penalized, but that is what happens. The more you make by working harder and longer, the more money is stolen from you, and given to those who spend their lives living off the hard work of others.
The revenue the government needs to provide legitimate constitutional services should be obtained primarily from a national sales tax instead of a tax on wages. All would pay based on consumption, the more you spend the more you pay. The more luxury you surround yourself with, the more you pay. Your choice. A national sales tax system would capture money spent by criminals and by illegal aliens who currently pay near zero in taxes. There would of course need to be exemptions: Cars (already have a federal excise tax) Primary Residence/Rental Properties (vacation homes would be subject to tax/rental profit would be taxed) Fresh Food (Preprocessed foods and prepared meals would be taxed – only fresh/fresh frozen/canned goods would be exempt) Insurance Premiums, Health Care & Certified Education.
Adding another layer of tax to a business would not be fair. Businesses would need to be compensated by keeping a portion of the tax to cover the expense of collection and reporting. A percentage of .20 to .05 would be fair.
There are a-lot of defenders of the rich today. Certainly there can't be this many rich people. The rich have been so abused and misunderstood; my foot. Maybe the rich are hiring teams of bloggers to fend for them. Or Fox News' propaganda brainwashing must be working. But none of you can explain why the economy was better in the 50s 60s when the rich were taxed at 90% plus. And don't give me some Fox news think tank party line crap. By the way I despise both rotten parties.
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