Surpercommittee Democrats’ Betrayal and Some Suggestions for the 99 Percenters

In the lead article in the November 21, 2011 issue of The New Yorker, Adam Gopnik wrote: “When there’s  a permanent confiscatory class of eagles, the turkeys can’t find a spot on the national seal.” This sentence spoke to me in what I recently learned about what Democrats, acting like turkeys, were willing to give up to the Republicans, playing the role of confiscatory eagles on the congressional supercommittee on deficit reduction.

Senator John Kerry said the Democrats laid their “sacred cows” of Social Security, Medicare and Medicaid on the table and were willing to make benefit cuts in them, including accepting means testing. Kerry acknowledged that the supercommittee Democrats are likely to take heat from the Democratic base for negotiating away benefits on their core issues, after the Democratic leadership had said that such cuts were not acceptable.

In the budget deal, the initial floor on tax increases was $1 trillion. Kerry said that the Democrats started lowering the acceptable tax increase amounts: starting with $1.2 trillion, going down to $1 trillion, then down to about $650 billion, and finally, offering to accept Senator Pat Toomey’s proposal of $300 billion in tax increases over ten years — it actually was $290 billion, with $40 billion of that to come from annual adjustments in tax rates based on inflation. Kerry said that Toomey reneged on his deal because the Democrats would not agree to a permanent extension of the Bush tax cuts.

The Toomey plan would limit the deductions for mortgage interest, charitable deductions, and state  and local taxes. Employer-provided health benefits might be taxed for the first time. The top rate would drop to 28 percent and the bottom rate would drop to eight percent.

The plan would permanently extend the Bush tax cuts but drop the top rate by 20 percent. A total of $750 billion would be cut from Medicare and Social Security.

The Center for Budget and Policy Priorities found that taxpayers earning more than $200,000 a year would receive tax cuts under the Toomey plan, far more generous than they would get if Congress merely renewed the Bush tax cuts once again.

Now it is proper to roundly condemn the Republicans for heir iron intransigence against supporting any tax increases, even on the wealthiest persons in society. The Democrats who were willing to give away so much on the spending side and accept so little on the taxation side should be roundly condemned also.

The Bush tax cuts were not on the table, as they were expected to expire before the spending and taxation strictures under the budget deal became effective on January 1, 2013. Thus, the Bush tax cuts should not have even come into the conversation. Even with a tax increase of $1 trillion, spending cuts on the table exceeded tax hikes by a ratio of six-to-one. Accepting a $290 billion taxation increase would have changed the ration to over 20-to-one. What the Democrats should have been arguing for was to reduce the ratio between spending cuts and tax increases, not increase it.


Switching to my unrequested advice to the 99 percenters, it seems to have been a wise decision for them to not have begun with a series of demands. Instead, making the case of how wealth and power is concentrated at the very wealthiest tip of society struck a chord in the nation.However, there is now coming a time when the 99 percenters must begin articulating a more specific case on the inequality and formulating ways to make the United States a more equal society. I would quibble about the choice of the name “99 percenters.” The top one percent own about a third of the nation’s wealth; the top five percent own a little over 60 percent; and the top 20 percent own over 80 percent. Thus, the 99 percenters could have called themselves the “95 percenters” or the “80 percenters” and still have captured the fact of concentrated wealth.

Besides these percentage indicators of wealth inequality, the Institute of Policy Studies has brought forth the statistic that the top one percent own half of the nation’s stocks, bonds and mutual funds, while the bottom 50 percent own five percent. A lesson that is buried in this financial imbalance is that the 99 percenters should be advocating taxing capital gains at the same rate as ordinary income — the evidence is murky, at best, that capital gains income is a  major job creator.

In terms of national personal debt, the top one percent have five percent of the debt and the bottom 90 percent have 73 percent. The political policy implication of this factual situation is that legislative efforts to require bankruptcy judges to provide relief for underwater homeowners should be supported.

We have been hearing a lot lately about the wealthy paying “a little bit more” or an undefined “fair share” in federal income taxes. Unfortunately, a consensus is building that the top marginal tax rate should be no more than 39 percent, although the United States was economically very prosperous in the 35 years after World War II, when the top marginal tax rate was never under 70.45 percent.

It has now become generally accepted among taxation experts that, on  average, those in the 35 percent taxation bracket actually pay about 18 percent of their income in federal income tax. In studying taxation rates, I recently learned that those in the 91 percent bracket in 1961 actually paid 42 percent in federal income tax. I was struck by this correlation between the top rate and the percentage of income tax paid. Because of exemptions, deductions and the fact that in a progressive income tax system, in which the tax rate increases with an increase in income, those in the top bracket actually pay about half of their income in taxes to the national government. Thus, a top rate of 60 to 70 percent would roughly correlate with the richest Americans’ share of the national wealth. The 99 percenters should be pushing for a top marginal tax rate of at least 60 percent.

The contention that the wealthy are not paying their fair share of income taxes is usually met with a counter-argument that the wealthy pay most of the federal income tax. The response to this counter-argument is that the wealthy are paying taxes at a rate that is much lower than their ownership percentage of the total national wealth.

The next blog will examine the argument that corporations are being taxed so heavily as to not be competitive in the world.



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