ROBERT B. REICH, Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written thirteen books, including the best sellers “Aftershock" and “The Work of Nations." His latest, "Beyond Outrage," is now out in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause. His new film, "Inequality for All," is now available on Netflix, iTunes, DVD, and On Demand.

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  • The President’s Opening Bid on the Grand Bargain (III): The Difference Between “Broadening the Tax Base” and Raising Taxes on the Rich


    Wednesday, November 14, 2012

    The President says he wants $1.6 trillion in tax hikes. Republicans say they won’t raise tax rates but might be willing to close some loopholes and limit some deductions and tax credits. Is compromise in the air?

    Not a chance. True enough, such “base broadening,” as Republicans like to call it, could conceivably generate $1.6 trillion in additional tax revenues over the next decade.

    But, wait. Didn’t the President just win a second term? The major issue decided in last week’s election was that the rich should pay more. So, presumably, that $1.6 trillion should come out of the pockets of the wealthiest Americans.

    "Broadening the base" has nothing whatever to do with the rich paying more. That’s because a lot of tax credits and deductions help the middle class and the poor.

    If we end the Earned Income Tax Credit, for example, some of the poorest Americans will end up sacrificing. That tab was $63 billion last year.

    Or if the “loophole” is tax-free employee health care, or the home mortgage tax deduction, or tax-deferred 401K accounts, most of the added tax revenues will come out of the pockets of the middle class.

    So when Republicans talk about “broadening the base,” watch your wallets. Now that the President has set his goal on $1.6 trillion in additional taxes, the question is whether the rich are going to cough up $1.6 trillion more.

    There’s no way that $1.6 trillion can come out of the pockets of the wealthy merely by capping the deductions the wealthy take advantage of.

    If Republicans won’t budge on raising tax rates but insist on broadening the base, Democrats should take aim at the biggest tax loophole of all for America’s wealthy: the preference for capital gains.

    Capital gains are now taxed at only 15 percent (the major reason Mitt Romney pays a rate of under 14 percent on over $20 million of annual income). Capital gains should be taxed the same as ordinary income. That way, under a progressive tax system, the wealthy would pay far more — on the way to $1.6 trillion.

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