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Raise Taxes or Cut Entitlements–You Decide.

July 2nd, 2010 · 1 Comment · Capitalism, Economics, jobs, Politics, taxes

You should see one particular chart from the Congressional budget office.

Here’s what it says:

The lowest two quintiles (lowest 40%) of wage earners averaged $17,400 in 1979.

The Top One percent of wage earners averaged $167,500 in 1979.

By 2007, the 27th year of the Neoconservative Era, the bottom two quintiles made $20,500. That’s an increase of 18%.

By 2007, the top 1% made $352,000. That’s an increase of 110%.

And those figures really express very graphically what is wrong with this country today. You could call it greed and you wouldn’t be far wrong. Some people might say that it is ambition and enterprise and lots of hard work (it usually is…very hard work…making lots of money.)

Those two sets of figures are inescapably symptomatic of a shift in the political power in this country. What the Neoconservatives did, are still doing, is to change the psyche of the American people. In 1979, the top 1% owned 20% of the country’s wealth. They paid a top marginal tax rate of 74%. So, with that kind of a tax bill, it was better to take a large chunk of that money and invest it. You could invest it abroad, but even in the late 1970s we were not as world-wide conscious as we are today. There were still plenty of reasons to invest at home.

But when Reagan cut the top marginal rate to 28% and then leveled it off later at something a little higher but still only about half of what it had been, there were two unintended consequences. The first was that those with newly found wealth were much less inclined to seek out capital gains. Why risk your money and wait five years for a 15% tax rate when you could pay an adjusted net rate of something like 23% today?

The second unintended consequence was that people who did not reinvest their money soon spent much of it. One of the big purchases that people use excess income to acquire is that old standby, a bigger home in a nicer neighborhood. Once you have a bigger home in a nicer neighborhood—depending on the neighborhood—it may be only a short trip in the imagination to an estate. An estate, however, is more than a house. It becomes a lifestyle change. It comes with privilege and a certain self-obligation to maintain it.

So how do you do that? One of the ways is to find a way to guarantee that your income is so much better than average that even the exigencies of good or bad financial years will not alter your lifestyle.

In 1979, the average CEO made 35 times what the average worker made. By 2005 that had increased to 262 times the amount earned by the average worker (about $41,000.) What does that look like? $10,982,000. Most people could maintain a small estate on that every year. In fact, at this income level a CEO makes in one day what the average worker makes all year.

So that is how the top 1% went from 35 times to 262 times the average worker and why the top half of all earners, composed heavily of the management class, earns enough money to pay over 90% of all the taxes. They earn it; they pay taxes on it.

And that is why the CEOs of health insurance firms are willing to spend tens of millions of their companies’ money to defeat health care reform. This battle is still going on because it is not about principles of management or debates on the delivery of services. This is about CEO pay and a cushy estate lifestyle that is being threatened. While 15 million people are without work and while 40 million now go without health care.

And so it must have been kind of an economic miracle, wasn’t it? Well, it was for the upper income brackets, the top quintiles. The Republicans make a large show of saying that the top half of the income spectrum pays 90% of the taxes. We all pay lots of other taxes, including payroll taxes and gasoline taxes and property taxes. But the huge income disparity was not a miracle it was deliberate.

Sixty-four percent of U.S. corporations are owned by those with 1% of the wealth. These owners of corporations, who are often Wall Street investment groups and those to whom they have sold large blocs of stock hire managers whose job it is to make money for them. The CEOs also bring in a board of directors whose chief function seems to be simply to rubber stamp the incomes of all the top management.

Since 1980, this group has operated with the complete cooperation of the federal government. The number of thinks tanks and lobbying groups has proliferated. The government, which represents 12% of our economy, took in fewer and fewer revenues as a percentage of GDP. The fact is that the government, under Republican Neoconservatives, has cut its income to the bone…far less than it takes to run it and the lowest amount in 60 years.

Even before the Bush Recession of 2008, the administrations of Reagan, Bush the First, and Bush the Lesser created a national debt of $10 trillion dollars (From 1780 up to Reagan we had kept it to less than a trillion: $800 billion.) Now, with the debt from the Great Bush Recession, we have a $13 trillion debt, $2 trillion alone from Bush’s last year in office, plus the residue he left behind.

The Barack Obama administration was handed job losses of 780,000 for January 2009 alone, its first month in office! It took him over half a year just to slow down the Recession and keep it from turning into a Depression. Deflation is no less serious than inflation. In fact, it is worse. Merely keeping the country from falling into a Depression was a major accomplishment.

During the Second World War the amount of national debt went over 100% of GDP. But it did so in just a few years so that we could fight the war. Today, the national debt is about $13 trillion, over 90% run up in the 28 years or so since Reagan took office…almost all Republican years.

Thanks to Bush the Dumber, it will also continue to stay at very high levels. The GDP, the sum of all economic activity in the U.S., all the auto sales and all the home sales and food and Friday nights out on the town, amounts to about $17 trillion. So, we’ve got a way to go to equal what we did in the Second World War. But we have less resiliency today in our economy, so we must bring deficits down.

The problem is that the Obama Administration–and all Americans—have been left a structural debt that is now going to be about $1 trillion a year. The reasons are not complicated. We had a budget deficit running about $500 billion a year under Bush. When the economy crashed, it added $300 billion in things like unemployment and other costs of a society where a huge number go out of work. And when 15 million working Americans no longer pay taxes, it dropped the revenues by another $300 billion. Add that $600 billion to the $400-600 billion already in deficit and you quickly reach $1 trillion a year.

So we owe $13 trillion and the Congress now must decide who pays it off, because it must be paid off eventually. That is what the Peterson-Pew Commission has been asked by the President to recommend. If you return to the very beginning of this post, you will understand quickly who must help.

If you look at a chart of the national debt and the taxes of Americans, you will see that in the period when we were paying off the national debt from World War II, we had top income rates that were very high and a huge spread between those and the lowest rates.

Today, we have abnormally low top marginal rates, a huge national debt and, even though the lowest quintile pays virtually no taxes because they have no taxable income, the spread between the highest wage earners and the lowest is much closer. In addition, the top rate is far below what is necessary to pay down the debt as we did in the period 1947 even up to 1979.

But the Neoconservatives have persuaded many voters, through their paid propagandists, that we are all over-taxed, even though our tax revenues were the lowest since 1950. Normally our tax revenues, despite all the discussion of how much we pay, run about 18% of GDP. Right now they are under 15%. If you do the numbers that comes out to almost exactly the shortfall in our annual deficit from 2001 to 2008 something like $500 billion.

The fact is that we can improve the nation’s economics and the personal income and job opportunities for millions of Americans without making drastic cuts in the budget. The way to do it is to find opportunities, like alternative energy, and exploit them. We need to ask the millions of Americans in that rarefied air of the top 1% of income earners and the corporations as well, to step up and take on more of the tax burden. If they don’t want to pay the taxes, let’s allow high income earners to invest in U.S. corporations with jobs in the U.S., including small manufacturers. Let’s tax products coming into this country that are made by U.S. manufacturers abroad. Make it attractive to manufacture goods in this country again. Let’s cut non-essentials in government and bring our troops home. We can have a strong economy again if we really want one.

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