A Conservative Tax Proposal

By Barbara Ehrenreich

The rich have long been a reliable source of tabloid entertainment, fashion tips and role models for the financially light of heart. The idea that they might also be a source of revenue for our debt-ravaged Federal Government is just beginning to take hold. President Bush has given a faint nod to the principle of fairness with his idea of cutting state and local income tax deductions for the affluent only. And the Democrats, should they recall their ancient affection for the "little guy," may be gearing up to propose that income tax rates for the rich be raised -- at least enough to bring them up to the level now paid by the merely comfortable.

But the idea of collecting revenue from the one place where money can actually be found is being advanced with a hesitancy so tremulous as to border on cowardice. In the conventional wisdom of Congresspersons and presidential advisers, the very word taxes hangs like a sharpened stake over the heart of the middle class. Supposedly, the only populist position is the one that was written, until last May, on the lips of President Bush. Anything else spells electoral death. Look, as the pols mutter one to another, at what happened to Walter Mondale.

There's a certain wisdom to this. Middle-income Americans have reason to fear the naked T word, no matter who is wielding it or with what intent. Consider our experience in the past dozen years, which amounts to a kind of aversion therapy to the very notion of taxation: Inspired by the tax revolt, congressional Republicans instituted the first supply-side tax cut in 1978. Next, Ronald Reagan rode into office and rewarded the electorate with what was advertised as an across-the-board tax cut. So far so good, at least at the level of the large print.

What happened, though, was that most people's federal taxes actually rose. According to a study from the Congressional Budget Office, only the richest ^ 10% of Americans saw their taxes decline. The overwhelming majority -- 9 out of 10 American families -- are now paying a higher share of their incomes in overall federal taxes than they did prior to the tax cuts of 1978 and 1981.

If that's what tax "cuts" did, what could we possibly expect from something that is more forthrightly called a tax "increase"?

So it's time for a little honesty and precision on the part of our policymakers. Taxation, from the middle-class perspective, does not have to be a polite synonym for looting and pillaging. No doubt we do need higher taxes, but "we" are not all the same in our ability to pay. In part because of the tax "cuts" enacted in the past dozen years, inequalities in wealth and income are deeper today than they have been at any time since the government started measuring such unpleasant realities in the late 1940s. Real, after- tax, income has been falling for most American families since the late '70s. Only among the wealthiest 20% have real incomes risen noticeably since 1977; and among the top 1%, after-tax incomes have more than doubled.

Here's a truly conservative proposal -- if conservative is understood in the old-fashioned sense of tending to "preserve the established order." Let's go back to a genuinely progressive income tax, whereby the rich are taxed at appropriately higher rates than the rest of us. According to the Washington- based Citizens for Tax Justice, the cumulative impact of the past 12 years of tax cuts for the richest 1% will cost the Treasury $158 billion in 1990, not much less than the projected budget deficit. If these citizens with slide rules are right, a restoration of the old, progressive tax code would lower taxes for 90% of Americans, while generating $70 billion in net revenue.

Ah, but I can already hear the sound of congressional bottoms squirming against their tax-financed leather upholstery. That's too radical, they'll say. We can't use tax policy to redistribute the wealth! But you already did is the answer: the supply-side tax cuts of '78 and '81 amounted to a massive redistribution of wealth -- upward, unfortunately, to those who already have more than they know what to do with.

The rich won't pay anyway will be the next whine; after all, they have the accountants, the lawyers, the comfortable tax shelters. Take heart! The 1986 tax reforms really worked to close loopholes and sent the tax-shelter industry into deep recession. Besides, why should we be deterred by the lawless tendencies of the financial overclass? If we were proposing to raise revenues by cutting already meager welfare allotments for the poor, would anyone dare respond with a shrug, "What's the point? They'll cheat anyway."

Then there's the classic supply-side objection: the rich need to be pampered with tiny tax rates, otherwise they won't feel like investing in anything useful and productive. But what happened to the supply-side windfalls already thrown in the ample lap of the economic elite? No one can argue that this money all streamed virtuously into shiny new productive capacity, research and development aimed at making America competitive again. Instead, it vanished into leveraged buy-outs, real estate speculation and other gentlemanly versions of three card monte. Sales of luxury foreign cars skyrocketed in the '80s; art prices broke world historical records; Tiffany's sales boomed.

Finally there's the sincerest whine of all: Does anyone really care out there? After all, Americans voted for supply-side Presidents three times in a row and may even have come to believe that the rich -- with their stressful personal lives and vexing consumption options -- should be spared the additional burden of taxation. But the S&L scandal -- with its potential $1 trillion price tag -- may have changed all that. There's a new mood out there, and it goes like this: we didn't have the party; why should we clean up the mess?

But a fairer approach doesn't have to be undertaken in a spirit of class vengeance. If asked why they're going after the rich, our policymakers ought to be able to give the same answer Willie Sutton once gave when asked why he robbed banks: "Because that's where the money is."