Fixing the Deficit by Getting Help From the Top 1%

Leon Friedman – Law Professor, Hofstra Law School: Posted: 04/18/11 02:46 PM ET

 

President Obama seeks to reduce the deficit and the national debt by cutting defense costs, lowering spending on Medicaid and Medicare, reducing itemized tax deductions for the rich and eliminating the Bush tax cuts for families earning over $250,000 a year. The Republicans have already defeated him on the last issue during last year’s lame duck session when they insisted on keeping the reduced income tax rates for the next two years in exchange for continued unemployment benefits and reducing payroll taxes for middle class workers. The Republicans in control of the House argue that repealing the Bush tax cuts would have an adverse impact on small businesses which are often single proprietorships subject to individual income tax rates. If their taxes were increased, they would not hire or rehire workers in this time of grave unemployment.

The latest Congressional compromise on the federal budget reduces funds for police and fire agencies and cuts $600 million from community health care centers. Is there another way to reduce the deficit, rather than depriving the lower and middle classes of necessary government benefits, such as Medicaid and Medicare or educational grants?

Some recent reports show that those at the top of the income and wealth ladder have done extremely well in the last decades. Hardly a day goes by without some economist discussing and analyzing the huge disparity in wealth between the rich and the rest of society. Joseph Stiglist, the Nobel Prize winning economist, has written an article in the latest Vanity Fair entitled “Of the 1%, By the 1%, For the 1%.” The article discusses the enormous and growing inequality in wealth in this country, which has largely been the result of the Reagan tax cuts of the 1980’s and the Bush tax cuts of 2001. Stiglitz points out that in the last 25 years, the top 1% have doubled their percentage of yearly income. In the period from 1976 to 2007, while national income has increased by about 60%, the income of the top 1% has increased by 275%. As of 2008, the top 1% received over 20% of the total income earned by all Americans.

When one examines wealth, instead of income, the top 1% do even better. In 1970, the top 1% owned 20% of the nation’s wealth. In 2007, they owned 34.6% of the total wealth, according to a study (the Survey of Consumer Finances) prepared by the Federal Reserve Board. A leading scholar on wealth inequality, Professor Edward Wolff of Bard College, has argued that a truer measure of the wealth of the top 1% is their ownership of easily disposable assets, that is, the net worth of a household, minus the equity in owner-occupied housing. If one eliminates the value of a family’s owner oc