Tuesday, January 17, 2012
End of the Reagan era?
Reagan slashed taxes for the rich, but raised them on the 99 percenters. Yes, that 8 percent tax on waiters and waitresses came about during the Reagan years. In all, Reagan raised taxes 11 times during his presidency.
Reagan pushed the tax burden downward and it became known as the "trickle-down theory."(1)
It is no small wonder then that while the 1 percent's share of the pie has expanded dramatically, it has come at the expense of the rest of us.
The middle class is now the muddled class.
Reagan also famously said the "government is the problem" and he aimed to shrink it.
Of course, he did the opposite.
Spending escalated during the Reagan years while revenues fell or were flat, thanks to whacking the top tax rate from 70 percent to 50 percent in 1981 and down to 28 percent in 1986.
As a result the federal deficit tripled on Reagan's watch.
The message of Reagan was simple: we can have it all and not worry about paying for it.
(Under Bush I and Bill Clinton the top tax rate floated back up to 39.6 percent and it helped hand Bush II a surplus, which he quickly squandered, and then some.)
By spending far more than was coming in, Reagan demonstrated that "deficits don't matter," which Dick Cheney reiterated a few years ago.
It became so ingrained in the culture that George W. Bush waged two wars without seeking any additional funds to pay for them. In fact, Bush reduced revenues by cutting the top tax rate to 35 percent.
Well, it is now 2012 and the government, thanks to the Reagan "revolution," is drowning in debt and our future depends on the Communist Chinese, which is ironic since part of the Reagan lore is how he, in "High Noon" fashion, stared down and defeated the Communist Soviets.
Since a Democrat is in the White House, the deficit is an all-consuming passion for teabagging Republicans and for those who equate their personal debts with that of the federal government.
But, we have a president who may transform, or even reverse, the Reagan legacy: If we want something, we must find a way to pay for it.
When faced with the opportunity to let the Bush tax cuts expire at the end of 2010, however, Obama blinked, which annoyed the hell out of his base.
But, Obama kicked the can down the road so that one of the major issues of the 2012 presidential race will be: should the Bush tax cuts expire, thus pushing the tax burden up where it belongs and help our government get a grip on the deficit, or should the tax cuts continue, which will further destabilize our fragile economy.
Obama is not talking about raising taxes to the pre-Reagan era of 70.1 percent. No, he may be lucky to boost taxes on the wealthy from 35 percent to 37 percent. Actually, it should be at least 40 percent, if we want to get back to some semblance of fiscal sanity.
Raising taxes on the wealthiest Americans is something that even the majority of the richest Americans agree with. Warren Buffett, the "Oracle of Omaha" and one the richest men in the world, is leading the call to raise taxes on people like himself.
Buffett is the cover story of the latest Time magazine. He has some choice words that will rankle those who revere Buffett for his stock-picking acumen.
"We can rise to any challenge but not if people feel we're in a plutocracy," he told Time. "We have to get serious about shared sacrifice."
"People who make withdrawals from societies' resources -- like me with my plane -- should have to pay a lot for it," Buffett said in Time.
The article continues: That means not only higher taxes for the rich and an extremely progressive European-style consumption tax but also fewer loopholes for corporations. Buffett says it's "baloney" that corporate America's tax rates are too high and says companies should not be allowed to repatriate profits tax-free.(2) (It'll just encourage more investment to flow overseas.) In general, he says, "I find the argument that we need lower taxes to create more jobs mystifying, because we've had the lowest taxes in this decade and about the worst job creation ever."
The key phrase from Time's feature on Buffett is "shared sacrifice."
Will the electorate endorse that view, re-elect Obama and let the top tax rate rise?
If it does, Obama will be the "transformational" president he has longed to be.
(1) Also, known as "supply-side economics." Republicans claim it gave us the "booming" economy of the 1980s. The economy revived, however, not because of tax cuts, but because there were no oil shortages like the two that sucked the life out of the economy during the 1970s. In fact, during the 1980s, oil prices declined as the global market stabilized with a glut of oil. Plus, the Soviet Union was collapsing from within.
(2) Read this article by David Kay Johnston for some background. Or this piece from the Tax Policy Center.