Should we raise taxes on the rich?
TheStar.com – business
Published On Fri Sep 09 2011. By David Olive, Business Columnist
Not since the Gilded Age plutocracy of a century ago has there been such a near-consensus as there is today in North America on the need to raise taxes on the rich.
Warren Buffett was pushing on an open door with his heavily Tweeted op-ed in the New York Times last month calling for higher taxes on himself and fellow billionaires.
“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks,” wrote the controlling shareholder in scores of iconic firms ranging from Dairy Queen to the Burlington Northern Santa Fe railroad.
“My friends and I have been coddled long enough by a billionaire-friendly Congress,” wrote Buffett, whose tax rate last year was just 17 per cent, compared with an average of 36 per cent for his colleagues at his Berkshire Hathaway Inc. head office in Omaha. “It’s time for our government to get serious about shared sacrifice.”
Buffett no doubt braced for a backlash from the affluent. And Conrad Black, for one, has fretted that Buffett is exhorting lawmakers into a “tokenistic fiscal persecution of the most affluent” – a demographic to which the disgraced former press baron remains loyal, though his membership has lapsed.
But the real story here is the scarcity of objections to Buffett’s call for a level playing field, in which all income groups are able to participate fully in society.
Business is in such bad odour that realistically the most it can ask of others today is what used to be called Christian forbearance. Or to agree with Buffett. U.S. financier Eli Broad says, “We’ve been coddled long enough and have tax breaks that 99.9 per cent of the public don’t have, and it’s not fair.”
Hedge-fund manager George Soros adds: “The rich are hurting their own long-term interests by their opposition to paying more taxes.”
The distemper of these times, as Peter C. Newman labeled the social upheaval of the 1960s, is popular distrust of most institutions, including politics, organized religion, the medical-industrial complex and the news media.
Business perhaps looms largest in the rogue’s gallery. This isn’t the place to recite its rap sheet. Mere mention will do of the job-killing Great Recession triggered by errant tycoonery in global financial centres. Saving the world economy from that explosion of reckless greed has so far cost the U.S. alone about $2 trillion in taxpayer funded Wall Street bailouts.
Business leaders have to grasp that in recent years free-enterprise misconduct has come so fast and ruinous that it’s a blur. Tepco’s inadequately maintained Fukushima nuclear-power plant, BP’s Gulf of Mexico oil spill, Massey Energy’s mining tragedy in West Virginia, the fiscal villainy of war profiteers Halliburton and Blackwater – these all now seem preordained.
Business CEOs now pay themselves 325 times the compensation of shop-floor and cubicle workers. That ratio was closer to 25-to-1 in the 1960s. One cannot sustain an argument that business CEOs are now 300 times smarter than they were a half century ago, before they began “offshoring” manufacturing jobs or being stupendously rewarded for incompetence.
When they were shown the door at Citigroup Inc., Merrill Lynch Inc. and Countrywide Financial Inc. in the late 2000s, the malfeasant CEOs of those enterprises left with parting gifts of $147 million, $162 million and $145 million, respectively. The scandal besieged Rupert Murdoch has paid himself $33 million for fiscal 2010, a 47 per cent increase. The “pay for performance” canard espoused by its fattened business beneficiaries is honoured far more in the breach than the observance.
Bruce Bartlett, a veteran of the Reagan and George H.W. Bush administrations, has compiled all 23 polls on deficit-reduction over the past nine months. He found a consistent 2-to-1 support for tax hikes on the wealthy. Bartlett calculates that without George W. Bush’s tax cuts of 2001 and 2003 skewed to the rich, “federal revenue would have been more than $166 billion higher in 2008 alone” – enough to reduce the deficit by about 10 per cent.
The anti-tax brigade casts all tax hikes as “job killers.” That is nonsense. In the era before runaway pay for CEOs and higher top marginal tax rates in 1980s and 1990s, the U.S. economy created nearly 40 million net new jobs.
The salient backdrop for the current distemper is a 30-year stagnation in middle class incomes, while prices for fuel, shelter, tuition and even food have been soaring.
The gap between rich and poor has widened markedly in Canada, where the top 1 per cent of income earners accounts for almost 40 per cent of total national income. That same top 1 per cent collected one-third of growth in national income between 1998 and 2007. In the 1950s and 1960s, that figure was a mere 8 per cent.
Depending on which of the conventional measures of poverty one uses, there are between 3.2 million and 4.4 million Canadians living in poverty.
In a Star op-ed last month, Larry Gordon, co-founder of Canadians for Tax Fairness, a group advocating a more progressive tax system, plaintively asked, “Where’s Canada’s Warren Buffett?”
Best to ask Ed Clark, CEO of Toronto-Dominion Bank. In February of last year Clark told a gathering in Florida that he’d canvassed fellow members of the Canadian Council of Chief Executives, and that almost all had said “raise my taxes” as their contribution to erasing the federal deficit caused by the global credit meltdown.
It took the federal Tories’ attack machine just one week to fire off an e-mail to MPs and party supporters accusing Clark of shilling on the Liberals’ behalf for “massive new tax hikes on working- and middle-class Canadians.”
That was a jaw-dropping slander of both Clark and the Liberals. But it shut up Clark, whose highly regulated firm can’t afford to be on the wrong side of the federal government of the day.
The Conference Board usefully calls for a discussion on the efficacy of the 189 tax loopholes in current legislation, and the attractive alternative of a higher basic exemption. The Canadian Centre for Policy Alternatives would add an examination of the deleterious effects of EI and welfare programs grown miserly in the past decade, and the impact on income inequality caused by our own tax-policy changes favouring the affluent.
We can have that discussion peaceably in school auditoriums across the country. Or we can have it in the streets. But there will be a reckoning, because the status quo is untenable.
< http://www.thestar.com/business/article/1051509–olive-should-we-raise-taxes-on-the-rich >