WASHINGTON — From front to back and on nearly every page, President Barack Obama’s budget plan delivers a stark message: It’s time for the rich to lighten the load on the middle class.
In education, health care and an array of other proposals, the budget focuses more benefits on ordinary Americans and looks to the affluent to help pay for them.
And the change is meant to reverse a long-running trend in the opposite direction.
Since the 1980s, when Ronald Reagan began an era of tax-cutting, lower-class incomes have stagnated, middle-class incomes have increased only slightly, but the incomes of the richest Americans have skyrocketed, the 134-page budget document points out.
If the country is going to recover from the current economic crisis, Obama argues, that is going to have to change.
“Throughout our history, the United States has grown and prospered when all Americans have shared in the opportunities created by our economy,” Obama said in the budget overview.
Some Republicans denounced the priority shift in Obama’s budget as class warfare. And some economists warned that higher taxes on the affluent could reduce their entrepreneurial energy and were unfair because upper-income Americans already pay a large share of the government’s total revenue.
Many economists, on the other hand, think history supports Obama’s argument that American overall prosperity has generally increased when those in the middle did better.
During the economic boom that followed World War II, income inequalities eased as the middle class prospered. One reason was the availability of increasingly well-paying jobs in manufacturing and other booming sectors of the economy. Strong unions were able to negotiate contracts that gave even relatively unskilled workers more than such workers had earned in earlier times.
Also, those in the upper-income brackets were heavily taxed. Until the 1980s, the top tax bracket was 70 percent, though most wealthy Americans found ways to shelter much of their income from the highest rates.
In the 1990s, as manufacturing gave way to an economy based on services and technology, incomes would have become more unequal even without government action, said William Gale of the Brookings Institution. But the tax cuts enacted under George W. Bush accelerated the trend.
“If inequality was growing because everyone’s income was growing a lot — but the rich were just growing faster — then it might not be that much of an issue,” said Gale. “But what has happened in the last 10 years is that incomes at lower and medium levels have stagnated while the rich have gotten really rich.”
In 1980, the richest 1 percent of Americans claimed 10 percent of all national income. In 2004, they claimed more than twice as much — 22 percent.
“There’s nothing wrong with making money,” Obama’s budget document said, “but there is something wrong when we allow the playing field to be tilted so far in the favor of so few.”
Obama’s answer is to say that taxes for the rich will need to go back up — not all the way to 70 percent but to something in between the Bush era and the post-war era.
“What this does is undo the Bush tax cuts. And then it focuses a lot of new things at the middle and the bottom to reverse the inequalities,” said Roberton Williams, senior fellow at the Tax Policy Center.
Brian Riedl, a budget analyst at the Heritage Foundation, a conservative think tank, says Obama’s plan amounts to an unfair redistribution of the tax burden. Currently, he said, the top 20 percent of taxpayers pay 80 percent of all taxes collected by the government. And 40 percent of households pay no income tax.
Under Obama’s plan, he said, the top 20 percent of tax filers would pay 90 percent of all taxes and the number of families who owe no tax would climb to near 50 percent.
“President Obama is offering a free lunch to a lot of Americans on the backs of 5 percent of the taxpayers,” Riedl said.
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