Defending his 1981 tax cuts, President Reagan told a packed ballroom at the 1982 Conservative Political Action Conference: “Since when do we in America believe that our society is made up of two diametrically opposed classes — one rich, one poor — both in a permanent state of conflict and neither able to get ahead except at the expense of the other? … Since when do we in America endorse the politics of envy and division?”
Reagan would go on to beat the class warriors of the ’80s, pushing through landmark tax reform that lowered rates, simplified the tax code and cut the number of tax brackets from 16 down to just two.
Unfortunately, the class warriors are back. They are squatting on public property throughout the country chanting, “We are the 99 percent!” This is class warfare in its purest form. And President Obama told ABC News earlier this month that he is “on their side.”
House Budget Committee Chairman Paul Ryan of Wisconsin is leading the fight against these new class warriors. “President Reagan was absolutely right. Instead of policies that make it harder for Americans to rise, let’s lower the hurdles to upward mobility,” Ryan said last week. “That’s what the American idea is all about.”
Ryan’s liberal critics quickly seized on a Congressional Budget Office study, released the same day Ryan spoke, showing that incomes of the top 1 percent of households grew by 275 percent between 1979 and 2007, while incomes for the poorest fifth of households only rose 18 percent.
The Washington Post’s Eugene Robinson said that this study proved Americans have “been the victims of Republican-style redistribution — stealing from the poor to give to the rich.”
Set aside the fact that this study contradicts the liberal myth of stagnated middle-class wages; the middle 60 percent of Americans saw their income rise by 40 percent. The CBO report errs by ignoring income mobility.
A 2007 study by the Federal Reserve Bank of Minneapolis found that 44 percent of the households in the bottom income quintile in 2001 had risen to higher brackets by 2007. That study also found the escalator goes both ways: Thirty-four percent of households in the highest fifth of earners in 2001 fell to lower brackets by 2007.
Other Ryan critics, like Talking Points Memo’s Brian Beutler, attacked the budget panel chairman’s claim that America has greater income mobility than more heavily taxed countries.
Beutler noted a Pew report purporting to show that some countries, like Norway and Denmark, experience greater income mobility than the United States.
Let’s ignore some fundamental problems with Pew’s work (like the fact they didn’t control for much higher levels of unskilled U.S. immigration) and skip to their cure: “A more progressive tax code.” In other words, Pew, like Obama, is arguing for higher taxes on the rich.
But guess what? America’s rich already pay a far greater share of all taxes than the rich in other countries. For example, the top 10 percent of Americans paid 45 percent of all income taxes, whereas the top 10 percent of Danes pay only 26.2 percent.
A similar story plays out at the state level. A 2006 study found that between 1980 and 2003, no state saw a greater rise in income inequality than California. Guess which state also has the most progressive tax code? California, where the top 10 percent paid a whopping 73 percent of all state taxes.
Liberals and conservatives can disagree about the best way to help the poor; liberals prefer federal government programs, while conservatives favor more locally run solutions.
But one thing should be clear: Class warfare through the tax code is no way to fix income inequality.
Conn Carroll is a senior editorial writer for The Washington Examiner. He can be reached at [email protected].
