The administration should aim high when it begins its negotiations on deficit reduction.
Image from Flickr via -acola-
By Robert Reich
By arrangement with Robert Reich
I hope the President starts negotiations over a “grand bargain” for deficit reduction by aiming high. After all, he won the election. And if the past four years has proven anything it’s that the White House should not begin with a compromise.
Assuming the goal is $4 trillion of deficit reduction over the next decade (that’s the consensus of the Simpson-Bowles commission, the Congressional Budget Office, and most independent analysts), here’s what the President should propose:
Why not go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits?
First, raise taxes on the rich–and by more than the highest marginal rate under Bill Clinton or even a 30 percent (so-called Buffett Rule) minimum rate on millionaires. Remember: America’s top earners are now wealthier than they’ve ever been, and they’re taking home a larger share of total income and wealth than top earners have received in over 80 years.
Why not go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits? If they were taxed at that rate now, they’d pay at least $80 billion more annually—which would reduce the budget deficit by about $1 trillion over the next decade. That’s a quarter of the $4 trillion in deficit reduction right there.
A 2 percent surtax on the wealth of the richest one-half of 1 percent would bring in another $750 billion over the decade. A one-half of 1 percent tax on financial transactions would bring in an additional $250 billion.
Add this up and we get $2 trillion over ten years—half of the deficit-reduction goal.
Raise the capital gains rate to match the rate on ordinary income and cap the mortgage interest deduction at $12,000 a year, and that’s another $1 trillion over ten years. So now we’re up to $3 trillion in additional revenue.
Eliminate special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street, and we’re nearly there.
End the Bush tax cuts on incomes between $250,000 and $1 million, and—bingo—we made it: $4 trillion over 10 years.
And we haven’t had to raise taxes on America’s beleaguered middle class, cut Social Security or Medicare and Medicaid, reduce spending on education or infrastructure, or cut programs for the poor.
Mr. President, I’d recommend this as your opening bid. With enough luck and pluck, maybe even your closing bid. And if enough Americans are behind you, it could even be the final deal.
Robert B. Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.
Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, Aftershock: The Next Economy and America’s Future; The Work of Nations: Preparing Ourselves for 21st Century Capitalism which has been translated into 22 languages; and his newest, an e-book, Beyond Outrage. His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.