First test for Obama: tax cuts for the wealthiest

If president won't take a stand during lame-duck Congress, when will he ever?

November 16, 2010|By Robert Reich

Let's hope the president holds his ground on not extending the Bush tax cuts to the richest Americans — who don't need it, don't deserve it, and won't help the economy if they get it.

But instead of limiting his proposed extension to $250,000 of income (the bottom 98 percent of Americans), he should offer it to all those with incomes under $500,000 (essentially the bottom 99 percent), for two years.

The real explosion of income and wealth has occurred in the top 1 percent. Between 2002 and 2007, the bottom 99 percent of incomes grew 1.3 percent a year in real terms, while incomes of the top 1 percent grew 10 percent a year. During these years, the top 1 percent accounted for two-thirds of all income growth.

Over the last three decades, the top 1 percent's share of national income has more than doubled.

So there's no reason the top 1 percent should continue to get the Bush tax cut. The richest 1 percent of Americans spend a much smaller proportion of their income than everyone else. That means there's very little economic stimulus at these lofty heights.

Giving them a two-year extension would cost the Treasury $130 billion over two years, thereby blowing a giant hole in efforts to get the deficit under control.

That $130 billion would be enough to rehire every teacher, firefighter and police officer laid off over the last two years and save the jobs of all of them now on the chopping block. Not only are these people critical to our security and the future of our children but, unlike the top 1 percent, they could be expected to spend most of their earnings and thereby stimulate the economy.

Conservative supply-siders who argue that the top 1 percent will stop working as hard if they have to return to the 39 percent marginal rate of the Clinton years must be smoking something (probably an expensive grade). Incomes in the top 1 percent are just about the only ones that are now rising. (Wall Street just announced a 5 percent increase in this year's bonus pool, for example.)

Besides, the Clinton years weren't exactly bad years, economically, for the top 1 percent. They did wonderfully well then, too.

And the Bush tax cuts never trickled down. To the contrary, between 2001 and 2007, the median wage dropped. And President George W. Bush's record on jobs was pitiful.

The politics are even clearer. Over the next two years, Mr. Obama must clarify for the nation whose side he's on and whose side his Republican opponents are on. What better issue to begin with than this one?

Inequality continues to widen in America. But an especially wide chasm has opened between the upper middle class — including lawyers, doctors and small-business owners — who earn up to $500,000 a year, and the truly privileged who now occupy top perches in executives suites and on Wall Street and who pull in millions if not billions.

The political power of this top 1 percent is evident in everything from hedge-fund and private-equity-fund managers who can treat their incomes as capital gains (subject to a 15 percent tax) to multimillion-dollar home interest deductions on executive mansions.

If the president can't or won't take a stand against more benefits for these privileged few, when he still has a chance to prevail in the lame-duck Congress, when will he ever?

Robert Reich, former U.S. secretary of labor, is a professor of public policy at the University of California at Berkeley and the author of the new book "Aftershock: The Next Economy and America's Future." He blogs at

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