Every couple of years, when big investors suffer losses, Congress and their partisan economists launch into a heated debate over how to stimulate the flagging economy. This is mostly a rehash of the “trickle down” versus “bottom up” debate that dates back to the Reagan years.
Conservatives argue that the answer to the recession is to cut taxes and interest rates targeted at their über-wealthy and global corporate patrons. This is their program for any season, rain or shine, so it is immediately suspect.
Progressives argue, correctly, that we should target tax breaks and rebates to low- and middle-income people; their consumer spending will keep the economy chugging. Give a tax break to big corporations and the rich, and it will go anywhere on the planet in search of maximum returns. Give a tax rebate to a lower-income person or a small business and it is spent in the local economy, thus stimulating bottom up demand.
The likely congressional compromise will direct tens of billions in tax breaks to corporations and send ordinary people a check for $300 or $400. The wealthy will be further enriched, and everyone else will have extra cash to spend or pay down their Visa bill.
Whatever Congress does, however, it will borrow funds — adding further to a national debt that now tops $9 trillion. More borrowing will continue to weaken our economy, widen our trade deficit, increase current and future wealth inequality, and postpone the bill payment for another day.
Meanwhile, the rest of the world’s economists look at the United States like we’re profligate fools jumping up and down on a bubble of debt. They’re nervously depending on us to remain the “shoppers of the world” by borrowing money and buying imports beyond our means. But they see what we ignore: The gig is up.
Underlying our economic crisis is a polarization of income and wealth. Real wages for working people have been stagnant for decades, a horrific fact that has been masked only by increased work hours and vast amounts of private consumer debt in the form of credit cards and second mortgages. On the other end of the wealth spectrum, the superrich have so much money that they are engaging in speculative investments in search of maximum returns. This casino class, with its hedge funds and mortgage gambling schemes, have fueled further economic instability.
Congress should pass a “bottom up” stimulus package and pay for it with taxes on the rich. Three progressive tax proposals could pay for additional investments that would broaden prosperity and reduce distortions caused by concentrated wealth.
Increase top income tax rates. There are 7,500 households in the United States with annual incomes over $20 million. This private jet crowd has been the big winner of the rigged tax system of the last two and a half decades. Congress should boost the top tax rate to 50 percent on annual incomes over $5 million and to 70 percent on incomes over $10 million. This would generate an additional $105 billion a year and pay for a federal stimulus package.
Increase estate taxes. While the Bush administration is using the recession as a pretext for abolishing the estate tax by making the 2001 tax cut permanent, Congress should do just the opposite. The estate tax, our nation’s only levy on inherited wealth, should be revamped to tax inheritances over $20 million at higher rates. Revenue should be dedicated to reducing the payroll tax or providing debt-free college educations. As part of reforming the estate tax, Congress should restore the credit that allows states to “piggy back” on the federal estate tax and generate billions in revenue for states. State spending on education, infrastructure and community development are among the most effective intermediate-term economic stimulus.
Tax warehouses of wealth. Over the last two decades, the über-rich have funneled billions of dollars — funds that could have been taxed — into private foundations and nonprofit organizations like Harvard University. This is the “people’s money,” forgone tax dollars that should help stimulate the economy. We should increase the annual excise tax on private foundations and nonprofit corporations with assets over $20 million by two percent. Foundations that fail to pay out more than 5 percent a year, excluding their overhead, should be assessed an even higher excise tax.
These measures would generate hundreds of billions to pay for immediate economic stimulus as well as meaningful investments in economic opportunity. Borrowing funds to stimulate the economy will just postpone the pain. Paying now, through targeted taxes on the wealthy, makes economic sense. Further, it addresses the root of our current economic distress, the extreme inequality of wealth and power.