Edward Kleinbard, a professor at the University of Southern California, has pointed out that despite and in the face of extreme income inequality, not only is America’s tax system fairly ‘progressive’, its spending is fairly progressive in that the less affluent benefit more from it and the rich can often opt out of the public square altogether. So government needs enough revenue to sustain what it does at high quality, but it should not rely on ‘the few and the rich’ to be its main support. As I have said before, I don’t think raising the top rate from 28% to 38% will decrease government revenues; but going back to the pre-Reagan 70% very likely will; I remember the bizarre and byzantine legal structures that were set up in those days to get around this. There is a point at which the Laffer Curve really does kick in.
I was interested to see that even Social Security benefits are ‘progressive’ and that “lower-income beneficiaries get mere benefits relative to their contributions than do higher-income ones.” Of course, I really don’t think I should get any at all. I ‘paid into’ it, yes, but as far as I’m concerned, I ‘paid into’ the high speed rail, the government bureaucracies, and the wars in Afghanistan and Iraq, among other things. As I quote Michael Lind in a previous post, the political tensions are not so much for or against the welfare state as such, but it is now the means tested programs like AFDC and food stamps that are generally called ‘welfare’ in American English versus then non-means tested ones like Social Security and Medicare that are available to all without regard to financial status. And, though the means tested ones are a far smaller share of the national budget than the non-means tested ones, and contribute very little to the deficit, they have proved easier to cut!
The State of California is another matter. Its state income tax is so ‘progressive’ that it depends primarily on the investor class, whose income fluctuates radically with the economy, and revenue takes a radical hit with any recession or the popping of any bubble. I think that the Laffer Curve probably really has taken effect in this state, and an increase in the top state rate actually would drive revenues down. And, there is another principle at stake; we are all participants, and taxes should cost all of us something. I think that we focus on the few and the rich not because of hatred or resentment, but because of fantasy; because they exist, the rest of us don’t need to bear a heavy burden.