The United States has gone from relying on its rich for tax revenues to relying on them for loans, an economic turnabout that hasn’t been good for the country, writes Robert Reich, a professor at UC Berkeley and former labor secretary under President Bill Clinton.

 

Forty years ago, the rich had a tax bracket of about 70%, and even after deductions and credits it was above 50% percent. Today, the official rate is down to 36%. The capital gains tax rate was 35% as recently as the late 1980s, but now it has dropped to just 15%. Add to this a collection of bigger and bigger loopholes and, according to the IRS, the richest 400 Americans pay only 18% of their income in federal income taxes.

 

All this means that the U.S. Treasury isn’t getting nearly as much revenue as it once did from top earners.

 

With fewer taxes to pay, the wealthiest 1% have gone from controlling 9% of the national income in the late 1970s to more than 20%. What have they done with their extra wealth? Buy Treasury certificates, for one. And if they, like foreign holders of Treasuries, get nervous about the national debt and dump their certificates, it could spell trouble for the economy.

 

“The great irony is if America’s super rich financed the U.S. government the way they used to—by paying taxes rather than lending the government money—that long-term budget deficit would be far lower,” writes Reich. “This is why a tax increase on the super rich must be part of any budget agreement. Otherwise the great switch by the super rich will make the income and wealth gap far wider.”

-Noel Brinkerhoff

The Great Switch by the Super Rich (by Robert Reich)