Our national legislators are fighting tooth-and-nail over a small rise - from 35% to 39.6% - of the highest rate of personal income tax. This is a ridiculous fight.
Consider: In the 1940s, 1950s, and 1960s, the highest income tax rate was over 90%. The economy was booming. Lots of jobs were created.
Consider: The ratio of taxes (all kinds of taxes) to GDP is the lowest it has been in a half century.
Consider: For the past decade, the highest personal income tax rate has been at a historically low level – exactly what the Republican Party advocates. Yet the ‘job creators’ have not created very many jobs.
Consider: In the 1940s-60s, the gap between the richest and poorest Americans was much less than it is today. That gap began to grow in the 1970s, and has expanded ever since – regardless of whether a Democrat or a Republican was in the White House. There is now a class of extremely wealthy people – the ‘obscenely rich’ – that hasn’t existed since the days of the Robber Barons.
Consider: Most extremely wealthy people don’t really care what the highest personal income tax rate is, since most of their income is in the form of capital gains. The capital gains tax rate is 15% - whether on an income of $50,000 or $50,000,000.
Consider: 47% of long-term capital gains goes to the top 0.1% of households (that’s one-tenth of one percent, not one percent!). The ‘bottom’ 80% - that’s most of us – get a total of 6% of capital gains.
Consider: It is plausible that Mitt Romney lost the last election because so many people thought that it was totally unfair that someone as rich as he is paid a tax rate of only 14% (and probably less than that in the years for which he refused to release his tax returns). Every poll these days concludes that the American people – regardless of party – favor higher taxes for the extremely wealthy. Some of the extremely wealthy (Warren Buffet, Bill Gates) agree.
The American people want the opportunity to get rich AND we want the rich to pay a fair share of that wealth in taxes. Both are as American as apple pie, but the obscenely rich are currently getting far more than a fair share of that pie.
1. Raise the highest level of personal income tax to at least 50%.
2. Institute an alternative minimum tax of (at least) 25% on incomes above $1 million; this tax would take precedence over the capital gains rate.
3. Use the added revenue to reduce the deficit AND to improve services.
The ‘fiscal cliff’ problem is government’s lack of adequate revenue, not too much spending.