Reich’s Reverse Income Tax

Citizen Wealth Financial Justice

New Orleans    20100930_101830_SB01-REICH Finishing up my busman’s vacation at home over the last week or more, on a whim it seemed like a no-brainer to walk literally to the next block and finally figure out a way to get better use of my neighborhood library and show some real love to this breed heading too rapidly to extinction in the urban landscape.  My card was so out of date that the number was no longer in the computer, so a multi-colored, bar-coded thing replaced my old grey, dingy library card.  Besides computers, which were the only things hopping in the joint, you can now check out movies on DVD’s (Beyond Rangoon on the 1988 junta crackdown in Burma was my pick) and even music CD’s.

And, books are still there.  In the new section I grabbed Bob Dylan in America by Sean Wilentz and Aftershock by Robert Reich.  These were classic “books on the bubble.”  I’d read the reviews, but had not been convinced they were worth my money, especially on the Kindle bumps recently, or that I could move them high enough up the “time management” scale to get them read.  But for free at the local library, hey, why not, let’s take a look!

I met Reich when he was Secretary of Labor under Clinton.  I’ve read some of his stuff before.  He’s now left Boston and Harvard for Berkeley and Cal.  This was a quick tour of hardly 150 pages.  His basic argument on the Great Recession is appealing.  It might be summed up briefly as “It’s not the debt, stupid, it’s the income!”  That has a lot of appeal for a committed proponent of citizen wealth like me.  He makes the case and it’s a solid one that income inequality has so skewed the numbers leaving the middle class (read:  most people) sucking air and not able to finance the basic American lifestyle either in reality or aspiration.

He has some proscriptions, and the first was fascinating:  a reverse income tax.  He tries to sandwich a pretty radical economic proposal by first citing the conservative, Chicago economist Milton Friedman as a father of the concept and the usually popular Earned Income Tax Credit (EITC) as the best working model now in operation.   Here’s how it would work:

  • Full-time workers earning $20,000 or less would receive a wage supplement of $15,000 (i.e. income = $35,000).
  • Supplement would decline on income changes

o      +$10,000 for $30,000 earners = $40,000

o      +$  5,000 for $40,000 earners = $45,000

o      + $0 for $50,000 earners capping off the reverse income supplements

  • Tax rates would also support this pushup from the bottom

o      10% for incomes from $50-$90,000

o      20% for incomes from $90-$160,000

You get the basic idea.  He proposes a couple ways of paying for all of this including a 55% tax rate on incomes of the top 1% (making more than $410,000) and 50% for the top 2% (making more than $260,000) with those making more than $160,000 paying 40%.

Given that we just crossed into 2011 and two years of partisan push-and-shove with a lot riding on “hail mary” Presidential vetoes, none of this is in any danger of become reality, but it’s important to start thinking about what needs to be done to level the playing fields in America and why it matters to fight for the chance to restore citizen wealth.