The Incredible Income Shift

A former vice chairman of the Federal Reserve Board, Alan S. Blinder, recently wrote the following about the expiration of Bush-era tax cuts at the end of this year:

Today’s debate focuses on what to do about the upper-bracket tax rates, those applicable to the top 2 to 3 percent of taxpayers. What might be the argument for retaining these tax cuts even though the long-run budget is deeply in the red? That America needs more income inequality? Seems to me we have enough.

Indeed we do. The CBPP (featured on Mark Thoma’s blog “Economist’s View”) starkly contextualizes the current debate over whether to extend tax relief for those with the highest incomes. Their chart above probably understates inequality because it does not examine changes in income among the top tenth, top one-hundredth, and top one-thousandth of a percent. The top one percent has done much better than the rest of the top ten percent, and the top tenth of one percent has outpaced the rest of the top one percent, in income gains.

Rather than pushing hard on these points, the Obama administration appears comfortable allowing endless Congressional horsetrading to settle the issue. Deficits can be addressed by raising the retirement age, as secret commission deliberations likely plan. (This despite the fact that “Social Security can pay full benefits through 2037 without any changes,” and “the long-term [75-year] gap between Social Security’s projected income and promised benefits . . . roughly matches the revenue loss over the next 75 years from extending the Bush tax cuts for people making over $250,000.”) Employers continue to pile health care costs onto employees, all while successful corporations”invest[] their cash to pare back their payrolls [by] buying new factories and facilities abroad (China, Brazil, India), and new labor-replacing software at home.”

Just as he was ignored by the fiscal masterminds of the Clinton era, I expect Robert Reich will not be treated well by Geithner, Summers, and the rest of the current administration’s feckless economic team. But he helpfully reminds us that, after America’s last great economic crisis, “legislation like the G.I. Bill, a vast expansion of public higher education” and other infrastructural projects were “paid for with a 70 percent to 90 percent marginal income tax on the highest incomes.”

Rather than think on a similar scale, we are nickel-and-diming soldiers, losing the race for clean energy, and laying off teachers. Anyone who’s traveled in New York’s filthy and handicap-inaccessible subways, bumped along the US’s decrepit roads, or wondered at ancient American infrastructure, ranging from the electric grid to water works, knows that there are plenty of projects around that could usefully employ people. The question is whether the extraordinary accumulation of wealth at the very top will be put into the service of such socially useful endeavors, or fund more Wall Street bubbles. Forward-looking magnates like David Gelbaum can’t shoulder the burden of clean energy investing on their own.

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