... Americans want to know what happened to the economy and how to fix it. At least Republicans have a story – the same one they’ve been flogging for thirty years. The bad economy is big government’s fault and the solution is to shrink government.
Here’s the real story. For three decades, an increasing share of the benefits of economic growth have gone to the top 1 percent. Thirty years ago, the top got 9 percent of total income. Not they take in almost a quarter. Meanwhile, the earnings of the typical worker have barely budged.
The vast middle class no longer has the purchasing power to keep the economy going. (The rich spend a much lower portion of their incomes.) The crisis was averted before now only because middle-class families found ways to keep spending more than they took in – by women going into paid work, by working longer hours, and finally by using their homes as collateral to borrow. But when the housing bubble burst, the game was up.
The solution is to reorganize the economy so the benefits of growth are more widely shared. Exempt the first $20,000 of income from payroll taxes, and apply payroll taxes to incomes over $250,000. Extend Medicare to all. Extend the Earned Income Tax Credit all the way up through families earning $50,000. Make higher education free to families that now can’t afford it. Rehire teachers. Repair and rebuild our infrastructure. Create a new WPA to put the unemployed back to work.
Pay for this by raising marginal income taxes on millionaires (under Eisenhower, the highest marginal rate was 91 percent, and the economy flourished). A millionaire marginal tax of 70 percent would eliminate the nation’s future budget deficit. In addition, impose a small tax on all financial transactions (even a tiny one — one half of one percent — would bring in $200 billion a year, enough to rehire every teacher who’s been laid off as well as provide universal pre-school for all toddlers). Promote unions for low-wage workers. ...
Robert Reich: Making Sense
From Robert Reich (Why the Tax Deal Confirms the Republican Worldview)