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Why Obama's Budget Sell-Out to Republicans Threatens Our Economy

Obama's budget proposal hinges on major cuts that ensure that Republicans get to control the conversation on spending.

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Don't cut the government services they rely on -- college loans, home heating oil, community services, and the rest. State and local budget cuts are already causing enough pain.

The most direct way to get more money into their pockets is to expand the Earned Income Tax Credit (a wage subsidy) all the way up through people earning $50,000, and reduce their income taxes to zero. Taxes on incomes between $50,000 and $90,000 should be cut to 10 percent; between $90,000 and $150,000 to 20 percent; between $150,000 and $250,000 to 30 percent.

And exempt the first $20,000 of income from payroll taxes.

Make up the revenues by increasing taxes on incomes between $250,000 to $500,000 to 40 percent; between $500,000 and $5 million, to 50 percent; between $5 million and $15 million, to 60 percent; and anything over $15 million, to 70 percent.

And raise the ceiling on the portion of income subject to payroll taxes to $500,000.

It's called progressive taxation.

The lion's share of America's income and wealth is at the top. Taxing the very rich won't hurt the economy. They spend a much smaller portion of their incomes than everyone else.

Sure -- take some steps to cut federal spending over the longer term. Cut the bloated defense budget. Tame the growth in health care costs by allowing the federal government to use its bargaining clout -- as the nation's biggest purchaser of drugs and hospital services under Medicare and Medicaid and the Veterans Administration -- to get low prices. While we're at it, cut agricultural subsidies.

But don't believe for a moment that federal spending cuts anytime soon will get the economy growing soon. They'll have the opposite effect because they'll reduce total demand.

The progressive tax system I've outlined will get the economy growing again. This, in turn, will bring down the ratio of the debt as a proportion of the total economy -- the only yardstick of fiscal prudence that counts.

But we can't get to this point -- or even to have a debate about it -- if Obama allows Republicans to frame the debate as how much federal spending can be cut and how to shrink the deficit.

The President has to reframe the debate around the necessity of average families having enough to spend to get the economy moving again. He needs to remind America this is not 1995 but 2011 -- and we're still in a jobs crisis brought on by the bursting of a giant debt bubble and the implosion of total demand.

Robert B. Reich has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He also served on President Obama's transition advisory board. His latest book is Supercapitalism.

 
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