If Congress renews the Bush tax cuts for the wealthy this fall, the only conclusion to draw will be that the super rich have completely hijacked our political system.
Over the past few decades, inequality has vastly expanded in the United States. In the last 40 years, the share of total income for the top one percent of earners has expanded from eight percent to 18 percent. Also, the top 0.1 percent of Americans now earn eight percent of America’s total income. America’s wealthy and powerful are becoming richer at a rapid pace, and an extension of former President George W. Bush’s tax cuts for the rich would only exacerbate this trend, at almost no benefit to the economy as a whole.
President Bush’s 2001 tax cuts were strongly skewed toward benefiting the very wealthy. Now, President Barack H. Obama hopes to extend the tax cuts for the middle class and the poor but to end the tax cuts for the rich. What, exactly, would be the impact of Obama’s proposal to end the tax cuts for the richest Americans? Well, the wealthiest 120,000 taxpayers in America would still receive a hefty $61,510 tax cut under an extension of the middle class tax cuts, but they would lose out on the whopping extra $310,140 tax cut they would receive if the Bush tax cuts are extended in full. As a point of comparison, extending the tax cuts for the richest Americans would have little to no positive monetary impact for anyone below the 99th income percentile.
Judging on the merits of personal necessity, there is absolutely no reason why the top one percent of Americans need staggering amounts of extra tax relief. Even supporters of the tax cut realize this, which is why they make the argument that raising such tax cuts would hurt the economy during these difficult times. Yet tax cuts for the wealthy are the most inefficient way to stimulate the economy because the rich are much more likely to save their extra income than to spend or invest it. While the poor and middle-class, who are usually living paycheck to paycheck, will most likely spend their additional savings on necessities, the rich will save almost all of it, doing absolutely nothing to bolster demand.
In addition, President Obama’s plan would cut the 10-year deficit by $680 billion, which should be appealing to all of the Republicans currently refusing to pass any new job-creation legislation because of stated concerns about the deficit. With the money saved from not extending these giveaways to the rich, Congress should pass a temporary stimulus bill that would help the economy for the next few years and then allow the raised taxes to contribute to deficit reduction.
The money saved could be used to create an infrastructure bank, expand food stamps, give aid to the states, or restart the Work Share program, which pays private companies to keep employers on the payroll. A program like this would temporarily use these billions of dollars for productive uses throughout the economy, instead of sending them to sit in the bank accounts of the extremely rich. After the economy has recovered, the revenues could go plug the deficit.
The political debate over extending the tax cuts for the wealthy seems stunningly detached from the economic experience that much of the country is going through right now, and this is because our political system has truly been captured by America’s wealthiest citizens. As the influence of money in politics has increased to an astronomical degree, a vast majority of Congressmen—and the donors they absolutely need to stay in power—are from the top income groups. Living in this bubble where it seems as though many people will suffer from a tax increase, Congress is very worried about whether America’s top one percent gets a giant extra break.
Earlier this year, Annie M. Lowrey ’06-’07 wrote a column in the Washington Post where she hypothesized how the Senate would have been composed if it actually represented all Americans by income bracket equally. “Eight senators would have no income…16 would represent Americans who make less than $10,000” and “the bulk of senators would work on behalf of the middle class.” Instead, we live in a Senate where the median level of wealth is $1.06 million, and this is to say nothing of donors that often drive political decisions.
This staggering inequality between Congressmen and the people they represent is reflected in debates about everything ranging from tax cuts to universal healthcare and financial regulation. It has molded an unequal society where the wealthy have a stranglehold over the lawmaking process and where the most heated legislative debate about America’s worst employment crisis in 70 years centers on the tax rate for the top one percent. Our unequal society has now reached an economic crisis point, with America’s poor and middle classes failing to make ends meet. On this issue, Congressmen must put aside their self-interest and restart inclusive economic growth.
Whether they do will signify whether they represent all Americans or just their club of very rich ones.
Ravi N. Mulani ’12 is an applied math concentrator in Winthrop House. His column appears on alternate Tuesdays.