Tackle Wealth Concentration

Other contributors to this debate will no doubt highlight policy changes that would directly benefit working people, such as stronger labor laws, fair trade agreements, living wage laws, and increased investment in training and infrastructure. All of these are essential to make the economy work for working people. However, we also need to recognize that we are unlikely to achieve these goals as long as our country tolerates extreme levels of wealth concentration.

Not since the era of the robber barons have so few held such a large piece of our economic pie. America's top 0.01 percent of taxpayers have seen their collective income quadruple, after inflation, over the past two decades. Together, this ultra-rich class has 976 times as much income as the bottom 90 percent of U.S. society.During the late 1940s thru the 1970s, that ratio was around 200 to 1.

For working people, this is not merely symbolic. As long as so much economic power is concentrated in the hands of so few, the wealthiest will continue to have excessive influence over our nation’s political priorities. And until we seriously tax the holders of concentrated wealth, our government will lack the funding resources to meet social needs and build adequate infrastructure for the future. In short, we will never achieve economic justice for those in the middle to the bottom of our economic pyramid until we tackle wealth concentration at the top.

How can we do this? Previous generations pushed back against the robber barons of their day was by demanding tax fairness. And indeed, the acceleration of wealth concentration since the 1980s has tracked closely with an erosion of taxes on the ultra-rich. Throughout most of the mid-20th century, the top tax rate was just over 90 percent. The current top rate is 35 percent.

John McCain thinks the current tax system is just dandy. Barack Obama has proposed some changes in the right direction, but a bolder agenda is needed to reverse our second Gilded Age. A few recommendations:

Tax wealth the same as work: Why should someone pay a higher tax rate on income from actual labor than they do from investments (i.e., sitting back and letting money do all the heavy lifting)? America’s rich regularly realize vast amounts of this unearned income, through dividends, interest, and capital gains from trading stocks, bonds, and other forms of property. On these unearned dollars, they pay taxes at 15 percent, less than half the top rate on ordinary “earned” income. Obama has promised to increase the “capital gains” tax rate, but only to 20 percent.

Plug the loopholes for executives: The U.S. tax code is riddled with loopholes that allow top corporate and financial leaders to avoid paying their fair share of taxes. A recent study by the Institute for Policy Studies and United for a Fair Economy found that five of these loopholes, all of which are the targets of Congressional reforms, cost taxpayers more than $20 billion per year. Obama has not yet endorsed all of these fixes.

A more progressive estate tax: Foes of the estate tax, our nation’s only levy on inherited wealth, are pushing to slash rates down to mere nuisance status. If they succeed, the last three decades of excess in Corporate America will turn into a skyscraper-high foundation for a new aristocracy that would have the wealth — and power — to frustrate progressive social change for generations to come. One Congressional proposal would preserve the estate tax and make it more progressive, by applying a 55 percent tax on fortunes greater than $10 million. Candidate Obama’s estate tax reform proposal would lose over $100 billion in revenue over the next decade by unnecessarily lowering rates and raising the amount of wealth exempted by the tax to $3.5 million.

Use the power of the public purse: By law, the U.S. government denies contracts to companies that practice race or gender discrimination in their employment practices. So why should we let our tax dollars go to companies that increase economic inequality? Hundreds of billions of taxpayer dollars flow annually to companies that pay their CEOs more for a day’s work than their workers make in a year. Even the rescue package for Fannie Mae and Freddie Mac contains only loose controls over executive pay, stating that it must be “reasonable,” without defining the term. One bill pending in Congress, the Patriot Corporation of America Act, would be a step in the right direction. The bill would extend tax breaks and federal contracting preferences to companies that meet benchmarks for good corporate behavior. Among the benchmarks: not compensating any executive at over 100 times the pay of a company’s lowest-paid full-timer.

Raise the top income tax rate: In 2004, after exploiting loopholes, taxpayers who took home over $5 million paid an average of 21.9 percent of their incomes in federal tax. Back in 1954, the federal tax bite on taxpayers with comparable incomes averaged 54.5 percent. How much revenue could be raised by a significant tax hike on America’s highest incomes? If the top rate were raised to 50 percent on all income between $5 million and $10 million and 70 percent on income above $10 million, federal revenues in 2008 would jump $105 billion — and the nation’s richest 0.1 percent would still be paying less in taxes than they did under Republican President Dwight Eisenhower. Obama proposes raising the rates on the top two tax brackets, but only to the 1990s levels of 36 percent and 39.6 percent. The inequality of wealth is a political barrier to creating an economy that works for everyone, not just the wealthy. A bolder program to broaden prosperity will tax the top and make investments in education, infrastructure and economic opportunity.