End of the bonanza for the ultra-rich?

By Max J. Castro
majcastro@gmail.com

The last ten years the United States has witnessed perhaps the greatest transfer of wealth in history. The 2001 Bush tax cuts, set to expire at the end of 2010, represent an enormous decade-long bonanza for the richest 2 percent of the population, especially for the richest .001 percent. The remaining 98 percent received modest (the upper middle class), meager (the middle class), or no (the poor) benefits from the Bush tax cuts.

In addition, at a time when wages and salaries were stagnating for the vast majority, compensation for corporate executives, hedge fund managers and others among the privileged few were skyrocketing. Meanwhile, social programs to assist the poor, the sick, and the infirm were being cut, and the country’s basic infrastructure was starved of funds.

The result was that by 2008, economic inequality in the United States reached its highest point since 1928. And, throughout the decade, crumbling bridges and archaic levees took their toll on the lives of Americans from Minnesota to Louisiana. Moreover, the dismantling of regulatory regimes across the board, from mine safety to deep water oil drilling, and their replacement by policies that allowed business to write and enforce its own rules, set the stage for disasters such as this year’s BP Gulf oil spill.

Now, nearly two years into the Obama presidency, a battle is looming that could help define the all-too-often blurry lines separating the Democratic and Republican parties. Amid mounting concern about the budget deficit, the Obama administration is proposing to allow the Bush tax cuts to expire, but only for those making more than $200,000 (for an individual) or $250,000 (for a couple). This group accounts for only about 2 percent of all earners, and the increased tax would save the government more than $800 billion over the next ten years. For this top bracket of earners, the tax rate would increase only from about 36 percent to about 39 percent (and would be applied only to earnings above the $200,000/$250,000 threshold). This is less than half of the top bracket tax rate (80 percent) that prevailed in the good old days of the 1950s, when a Republican president, Dwight D. Eisenhower, sat in the White House. Thus in any case, the very rich would continue to do very well indeed. So much for Obama the “socialist.”

But even this modest increase of the tax burden of the very rich is too much for Republicans in Congress to stomach, and they are vowing to fight against it. Perhaps in an attempt to sound flexible, House Minority Leader John Boehner has said that he would vote for a bill that would extend the tax cuts for those earning less than $200,000/$250,000 only if he had no other choice.

But the House of Representatives, where the Democrats hold a huge majority, is not the problem. The real battle will come in the Senate, where the Republican minority can use a parliamentary procedure (the filibuster) to block any legislation proposed by the Democrats. Thus Senate Republicans (and a few weak-kneed Democrats) might be in position to hold legislation continuing the tax cuts for the 98 percent hostage to their demand that the 2 percent continue to reap the rich rewards that Bush conferred upon them.

The issue is tailor-made for the Democrats. In a tough election year for the party, the Democrats need to lay out, in stark relief, the differences that separate them from the Republican Party. Democrats need to fight for the interests of the 98 percent while persistently pointing out that the GOP stands for the interests of the 2 percent even at the expense of the 98 percent. The Democrats need to forcefully assert that the $800 billion that would go to the very wealthy if the Republicans have their way would be better spent repairing America’s disintegrating infrastructure and putting the nearly 20 million unemployed and underemployed Americans back to work. Whether the Democrats can unite behind this quintessential class and fairness issue will say a lot about whether there is at least a dime’s worth of difference between the two parties.