Robert Reich: Recover Our Spending Power

[ProSense]

Recover Our Spending Power

By ROBERT B. REICH

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Mr. Obama should point out that the United States economy is now more than twice the size it was in 1980, but the real median wage has barely budged; that in the late 1970s, the richest 1 percent of Americans got about 9 percent of total income, while by the start of the Great Recession the richest received more than 23 percent; that wealth is now even more concentrated. And the economy is bogged down because most Americans, unable to borrow as before, no longer have the purchasing power to get it moving again.

The president should make it clear that corporations aren’t to blame; they’re meant to make profits. Nor is it the fault of the rich who have played by the rules. But he should stress that a future with no jobs or lousy jobs for most Americans is not sustainable — not even for American corporations, whose long-term profitability depends on broad-based domestic demand.

The solution is to give average Americans a better economic deal. For starters, he should propose to expand the Earned Income Tax Credit (essentially, a wage subsidy) all the way up through the middle class. And he should suggest making the tax system more progressive: The rate on the $50,000 to $90,000 income bracket should be cut to 10 percent; on the $90,000 to $150,000 bracket, to 20 percent; on the $150,000 to $250,000 bracket, to 30 percent. Make up the revenue by increasing taxes on the $250,000 to $500,000 bracket, to 40 percent; from $500,000 to $5 million, to 50 percent; and anything over $5 million, to 60 percent. Tax capital gains the same as ordinary income.

In addition, he should call for strengthening unions by increasing penalties on employers who illegally deter them. And he should make college affordable by allowing federal loans to be repaid as 10 percent of earnings for the first 10 years of full-time employment.

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Seventy-five percent of Americans make less than $50,000. About 30 percent make less than $14,000 per year.

Raising the minimum wage would help 30 percent of Americans, or 50 million people. The tax code also needs to be fixed.






Edited number to reflect percentage of workforce.

[Jackpine Radical]

1. Yes!

Reich is absolutely on target here.

Unfortunately, I think that many of the rich in this country would rather be a rapidly expanding frog in a shrinking puddle than a healthily growing frog in an expending puddle. The former course has a higher intrinsic narcissistic appeal.

[ProSense]

2. This part might not be well received.

...Make up the revenue by increasing taxes on the $250,000 to $500,000 bracket, to 40 percent; from $500,000 to $5 million, to 50 percent...

Increasing taxes on people making $250,000 and lumping $500,000 and $5 million into the same category might be a tough sell.

The brackets could be adjusted:

$250,000 to $500,000 (no change)
$500,000 to $1 million (increse to 40 percent)
$1 million to $5 million (increase to 50 percent)
$5 million plus (increase to 60 to 65 percent)

[Jackpine Radical]

3. You may well be right on the details.

I have no particular opinion on exactly where the cutpoints should be or what the exact rates should be. Those would need adjustment to match revenue needs and to maximize perceptions of fairness.