The great reckoning is here

The current debate in Congress over what flavor of "economic stimulus" package to pass is a distraction. We've got much deeper economic troubles that a $150 billion tax rebate can't fix.

Don't worry, counsels President George W. Bush, the "economic fundamentals are solid." But that depends on what indicators at which you're looking. The indexes that measure the lives of ordinary working Americans have been shaky for decades: stagnant real wages, declining savings, longer work hours, and rising basic costs for food, health care and transportation.

A corrosive problem lies at the root of our economic instability: our society and economy are rapidly polarizing. The gap between the super-rich and everyone else harkens back to the Gilded Age of a century and a half ago. This glaring inequality leads to economic speculation by the rich -- think hedge funds -- and declining buying power for everyone else.

For almost 30 years, aside from a brief up-tick in the late 1990s, real incomes and wages for the bottom 60 percent of the population have been stagnant or in decline. But since working families have increased the number of hours they work and taken on increasing amounts of personal debt, it's been hard to tell.

Add to the mix the Bush era's "hands off" approach to regulating mortgage lenders, hedge funds and the credit card industry -- and we're playing with fire. As long as people could borrow, they could keep buying and paying their bills. Debt and overwork have postponed the Great Reckoning in our economy. But now the bill is due and our whole country is "maxed out." Congress should pass a stimulus package that gives tax rebates to those most likely to spend money in the economy: poor and middle-income families. But this is akin to fixing the windows when the foundation of the house is damaged. We need long-term investments in infrastructure, education, and economic opportunity to reverse three decades of disinvestment and polarization.

Our infrastructure of roads, bridges, mass transit and energy systems, all built by previous generations, is falling apart. The American Society of Civil Engineers estimates that we should double our current expenditures to $320 billion a year over the next five years to maintain our current infrastructure.

In the three decades after World War II, between 1945 and 1975, we made investments in infrastructure, housing and education that expanded our middle class and boosted our productivity. Progressive taxes, with income tax rates on the very wealthy as high as 91 percent under President Dwight Eisenhower, paid for all of that.

This was a tax-and-invest program that paid off royally in terms of economic vitality.

In contrast, the Bush administration has borrowed funds to give our wealthiest citizens tax cuts. This "borrow and squander" policy has added trillions of dollars to the national debt and foreclosed the real investments required for long-term economic health.

Two progressive tax proposals could pay for urgent investments that would broaden prosperity and reduce distortions caused by concentrated wealth. First, we should increase top income tax rates on the private jet crowd. Congress should boost the top tax rate to 50 percent on annual incomes over $5 million and to 70 percent on incomes over $10 million. This would generate an additional $105 billion a year and pay for a federal stimulus package.

Secondly, we should retain the federal estate tax and make it more progressive.

The estate tax, our nation's only levy on inherited wealth, should be revamped to tax inheritances over $20 million at higher rates.

As part of reforming the estate tax, Congress should restore the credit that allows states to "piggy back" on the federal estate tax and generate billions in revenue for themselves. State spending on education, infrastructure and community development are among the most effective forms of intermediate-term economic stimulus.

What's the alternative to taxing America's wealthiest one percent? One option is to raise taxes on wage earners, those who haven't shared in the gains of the last three decades. Or we could continue our immoral shifting of debt to future generations. Taxing the wealthy to pay for meaningful investments is the only responsible thing to do.

Chuck Collins is chair of the Working Group on Extreme Inequality.