The Fog of Class Warfare

Rather than spearhead sweeping tax reform, President Obama obsesses over returning the top tax bracket from 35% to 39.6% and has now proposed the “Buffett Rule” to see to it that millionaires pay in taxes at least what Warren Buffett’s secretary pays — a populist gimmick aimed at only 3 in 1,000 households (and absurdly leaving those earning, say, $800,000 or $900,000 off the hook).

For their part, rather than get busy reforming the dreadful tax code, Republicans in Congress run interference for the wealthy who fund their campaigns and protest “class warfare”. Wealthy Mitt Romney calls it that. Michele Bachmann says President Barack Obama’s desire to raise taxes on the top income group shows he “is committed to class warfare”. Eric Cantor, says the “mobs” in New York’s Zuccotti Park, who demonstrate against the riches of the top 1%, have led to “the pitting of Americans against Americans”.

Their premise is that the wealthy already pay more than their fair share of taxes. The conservative magazine The Weekly Standard says so, claiming that the top 10% of earners pay nearly 70% of the taxes. An editorial in Rupert Murdoch’s New York Post says the richest 1% contribute a whopping 32% of all taxes. And 40% of all income taxes, says The Economist. The share of all taxes paid by the top 1% has doubled, according to The National Review.

All true, but they want you to stop right there and think no further because otherwise you will come upon the obvious. Why do the wealthiest pay so much of the taxes? Because they take in a colossal and ever-increasing share of the nation’s money. So much so that the high ratios cited above are in spite of the lowest tax rates (a couple of Reagan years excepted) in anyone’s lifetime.

The top 10% of earners now haul in 50% of total income, reports Timothy Noah at The New Republic. They own 2/3rds of the nation’s wealth. Higher up the wealth scale, the concentration grows far more extreme: Catherine Rampell at The New York Times says the top 1% of Americans earn 1/5th of all income and control 1/3rd of all wealth. That’s “a share not seen since 1929”, says Time magazine, voicing the view that “the rich are increasingly absenting themselves from the country's troubles”.

That leaves the bottom 90% in control of just 26.9 percent of the national wealth. The average household wealth of the top 1% — home equity and investments — was near $14 million in 2009. The average for the rest —the 99% — was $62,900.

A report published earlier this year by by the Economic Policy Institute, titled “Taxes on the wealthy have gone down dramatically”, makes clear that the tax code itself has helped create this enormous imbalance of wealth. The average tax rate for that top 1% declined about 20% from 1979 to 2007 whereas the average American saw only an 8% drop over that same period. The Bush tax cuts — especially the reduction of taxes on capital gains and dividends to only 15% — were a windfall to the wealthy that resulted in 65% of all income growth in the U.S. going to the richest 1% of the population in just the years between 2002 and 2007.

This data makes overwhelmingly clear the huge income and wealth disparity that has developed in the U.S. and that is now giving rise to civil unrest. Which leaves one wondering why Republicans would risk alienating the growing mass of disaffected voters by so rigidly adhering to their defense of the wealthiest Americans. Instead, their tactic is to change the subject with a counterattack to distract taxpayers from learning how rigged the system is. Michele Bachman, Rick Perry, even the more circumspect Jon Huntsman — all want us to know that 47% of Americans pay no income taxes. They're saying that the lower income groups are the ones that should pay more taxes, not the wealthy, echoing Indiana Senator Dan Coats’ contention that “everyone needs to have some skin in the game”.

This has stirred up "we are the 53%" groups who "pay for those of you who whine". That sort, swayed by demagoguery, is not interested in facts, namely, for the same reason that the wealthy pay a high percentage of all taxes because they gather in so much of the money, the 47% pays none because they take home so little. And the number has risen to 47% because of the recession and joblessness. It was 30% before the crash.

We covered this 47% bumper sticker in this article in which we pointed out how much in other taxes the low earners pay, especially payroll (i.e., Social Security) tax, a regressive tax that stops at $106,800, beyond which no tax is paid no matter how much one earns. (We thought it might be fair to invert this scheme for a time in "Let's Turn the Payroll Tax Upside Down").

The Earned Income Tax Credit (EITC) is the reason many end up paying no income taxes because this program — credited with lifting 7.2 million out of poverty — returns fixed percentages of their income to those who earn so little that payroll taxes are unaffordable. Unlike old-style welfare, it encourages work because only those who work are eligible. The EITC was begun under President Ford, expanded twice by Reagan, and again by the first President Bush.

Are Republican candidates unaware that Reagan called it the “best anti-poverty, the best pro-family, the best job creation measure to come out of Congress” when they argue for cutting back this program so that even the poorest pay taxes? For such people this skin in the game is more like a pound of flesh, and that is certainly class warfare.