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Don’t blame—or favor—the rich

Date Published: 04/15/2010

Author: Dane Smith, President


A new report (by rich people!) finds that the wealthy are earning much more and paying much less in taxes

As the rhetorical wars on tax policy escalate, let’s allow right up front two important points about rich people and their taxes.

First, most wealthy and successful people in Minnesota and the United States can be celebrated. They should not be blamed, individually or as a class, for growing economic inequality and our increasingly regressive federal and state tax systems. They are not entirely responsible for the no-new-taxes orthodoxy and the public disinvestment that is threatening our quality of life and our prosperity in Minnesota.

Second, raising taxes on top-income households can only be part of a solution to our long-term budget crisis. Here in Minnesota, more revenue should be raised from ending overseas tax havens, modernizing and overhauling our entire state-and-local tax systems—and we can still actually reduce some unfair local business taxes.

Savings from redesigning and reforming government also must be realized.

But a highly regarded collection of billionaires and millionaires—including Warren Buffet, Bill Gates Sr., and hundreds of wealthy Minnesotans—have been trying for years to tell us that their taxes have been cut too much and they can indeed pay more.

In Minnesota, my own organization, Growth & Justice, earned a lot of attention four years ago with a full-page newspaper ad, signed by about 200 affluent and successful Minnesotans, declaring that “WE CAN AFFORD TO PAY MORE IN TAXES And We Can’t Afford Not To.”

This group is equally focused on a “smart investment” policy agenda for Minnesota, and reinvesting in education, transportation, a cleaner environment, public health and other good public stuff that builds community and human capital.

The good news is that at the national level, conscientious wealthy people themselves are speaking up about growing inequality and the growing national debt, and framing their obligation as a patriotic duty.

“Previous generations of upper-income Americans paid a much higher share of their income in taxes,” says Chuck Collins, an heir of the Oscar Mayer meatpacking fortune and co-founder of a new organization of wealthy individuals and business leaders, Wealth for the Common Good, based in Boston. “The taxes they paid, in the middle of the 20th century, became the investments in everything from scientific research to schools that laid the foundations for a vibrant economy and an expanding middle-class.”

That statement appears in a report written by Collins and released by his group this month, titled “Shifting Responsibility: How 50 Years of Tax Cuts Benefited the Wealthiest Americans.”

The report lays out a case that has been made by many reputable research organizations, including Growth & Justice. It shows that effective tax rates on the income of those in the top 1 percent have declined from 45 percent to 30 percent since 1979, while the same group’s share of total personal income has risen from about 10 percent to about 25 percent.

Let’s put it another way: The richest Americans now have a 250 percent larger share of the nation’s personal income, and their effective federal tax rates have been cut by one-third.

Meanwhile, as the federal tax system has become less progressive, the state-local systems continue a traditional pattern of increasingly regressive taxation.

In Minnesota, the highly regarded Tax Incidence Study shows that the wealthiest 1 percent pay less than 9 percent of their income in state-local taxes, while all other income groups pay an average of about 12 percent.

The report notes that this tilt toward favoring higher-income folks has been accomplished under presidents and governors and Congresses and Legislatures of both political parties.

“Many conservative critics of our current federal tax system are calling for a ‘flat tax,’ a system that applies the same rate to all taxpayers, no matter how high their income may be,” the Shifting Responsibility report notes. “To a distressing degree, our overall tax system—federal, state and local—has already ‘flattened.’”

Wealth for the Common Good offers these solutions at the federal level to reduce the debt and restore at least some fairness to the tax structure: Sun-set the Bush tax cuts as scheduled in 2010, restore a graduated estate tax on inherited wealth, end laws that permit overseas tax havens, tax financial transactions, or restore tax rates on capital gains.

The best part of the Wealth for the Common Good initiative is the tone of patriotism and sacrifice that it employs in making its case. The group’s website (www.wealthforcommongood.org) in various ways makes these compelling arguments, with humility and clarity.

Folks who are wealthy did not achieve their success by themselves, and they are not Atlases carrying the rest of us on their shoulders. And taxes for public investments by their nation and their states helped foster a prosperous middle class that could afford to buy their products and create their fabulous success.

Dane Smith is president of St. Paul-based Growth & Justice, a progressive research organization that focuses on economics and state-and-local budget issues. He also spent 30 years as a writer for the Star Tribune and Pioneer Press, where he delved into state, local and federal governments and politics.

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