Bipartisan Blight: The Great Tax Reform Mirage

It's time to raise rates on the top, tax the wealthiest Americans as they used to be taxed, and use that money to rebuild the economic infrastructure of this country, generating the growth that is the prerequisite to bringing down the debt.
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David Brooks is always a good marker of establishment conventional wisdom. Today, in a column grandly entitled, "A Tax Reform Vision," Brooks celebrates the growing beltway consensus on tax reform, suggesting that a bipartisan accord could be built around lowering tax rates, simplifying the code, and erasing most tax deductions and loopholes. He touts a bill put together by Senators Ron Wyden (D-Oregon) and Judd Gregg (R-New Hampshire) that is far more sensible than the more extreme version offered up by the co-chairs of the president's deficit commission. It would lower rates, eliminate loopholes, and end with a tax code that is a bit more progressive and raises a bit more money. If the Republican wingnuts will sign on -- although there is no sign that they will -- progress could be made. Irresistible.

Only we really have played this game before. In the mid 1980s, under Ronald Reagan, civic minded Senator Bill Bradley joined with reformers to fashion a similar deal -- lower rates, eliminate egregious tax loopholes and deductions, in a revenue neutral fashion. The establishment rallied; the bill passed.

Only while the deductions were eliminated, the lobbies that created them were not. They went to work. The loopholes, tax expenditures, various dodges returned. Now the tax code is so riddled with them, that beltway pundits can call for playing the same game once more.

Only while the loopholes returned, the lower rates stayed largely in place. The effect? By 2006, the top 1 percent of Americans (average net worth of about $15 million) pays rates fully one third lower than they did in 1970. The top 0.01 percent -- we're talking multimillionaires here -- pays less than half as large a share of their income. This has had staggering effect. Jacob Hacker and Paul Pierson show in their compelling study, Winner Take All Politics, that in 2000, the top one-tenth of 1 percent of Americans now capture a stunning 7.3 percent of all national after-tax income. If they were paying taxes at the same rate as they did in 1970, they would capture "only" 4.5 percent in after tax income. Over one third of their added after-tax income share comes from lower taxes.

We now suffer the worst inequality we've witnessed since the eve of the Great Depression. This inequality undermines our democracy, as concentrated money becomes concentrated power. But it also undermines our economy -- when the few capture so much, the many are strapped, demand for goods declines, companies have over capacity, workers get laid off, the economy suffers.

Alan Simpson, the egregious co-chair of the President's Commission, postures his plan as courageous in opposition to the "greediest generation" that would make no sacrifice. But his plan for deficit reduction begins by lowering top end tax rates once more, playing the same game again. And it seeks budget balance by cutting spending far more than by raising revenues.

Simpson can't bear to level with Americans about the real deal. The inescapable fact is that we need to be investing more at the federal level, not less. Our core infrastructure is literally falling apart. Our schools are unable even to provide the basics to every child. Our colleges are growing less not more affordable, even as advanced training or education becomes ever more important. We're defaulting in the crucial competition to gain leadership in the new green industrial revolution that will define the growing markets of the world. Our safety net -- support for the poor, training and support for the unemployed, affordable and skilled child care for working mothers, retirement security for the elderly -- is shamefully inadequate.

We need very different priorities, far greater discipline, much less waste, but we also need tax reforms that raise revenue. We need to raise rates on the top, tax the wealthiest Americans as they used to be taxed, and use that money to rebuild the economic infrastructure of this country, generating the growth that is the prerequisite to bringing down the debt.

These are simple truths. They are largely unspeakable in conservative Washington, and certainly among a beltway establishment comfortable with the extremes of wealth and cushioned against the terrors of economic recession and insecurity.

Do we have to fall for the same game again? Charley Brown is a lovable chump. Each year, Lucy promises to hold the ball for him to kick. Each year, he trusts her, runs up and takes a mighty swing. Each year, she pulls it away and he falls on his back. We adore him for his trust, his abiding innocence, and his faith in the good will of others. He's a lovable chump. But he ends on his back. We don't really need to fall for the con again do we?

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