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Rich Getting Richer. Poor Getting Poorer.

September 30th, 2013 · No Comments · Capitalism, Corporations and Industry, Economics, jobs, Labor, Lobbying, Politics, Populism, taxes, Wall Street

In the United States today, the rich are getting richer and the poor are becoming poorer. The facts are clear. They are reported by government agencies, think tanks, universities, and by the media that report on such things as business and economics.

Worse than income inequality, the United States, which had always been the beacon of hope for a satisfying, healthy, happy life has now fallen below many other countries in quality of life for the vast majority of its citizens. In many economic indicators, we are already a second-tier country. In others, incredibly, we are a third tier country.

Here are some facts. If you take the top income people in the United States, and not just the top .1%, that is, the top ten percent of the top one percent, but take the top one percent, their incomes have grown by 275% since 1980.

And that makes sense. Here’s why. If you look up the tax tables for 1980, the top income category, the one which, when you hit it, you started to pay about 70% of that income in taxes, was about $88,000. Today, the top 1% make a mean household income of $1.3 million. Just to get into that taxable category these days requires an income of about $344,000.

If, on the other hand, you take the middle 60%, that is, you drop out the top 20% and the bottom 20% you get what? The middle 60%–more popularly known as the Middle Class. They have lost ground, increasing their incomes by only 40%.

So, equal distribution would have been either 275% and 275% or 40% and 40%. In other words, 275% increase for the top 1% but also a 275% increase for the bottom 99%. It doesn’t mean they make the same. It simply means that both are moving ahead at the same pace. We’re talking about workers and specifically which workers might be left behind.

Now you could make the case that a millionaire might move ahead faster than someone making $50,000 a year just because of opportunity at that level. But basically what has happened is that high incomes have increased so rapidly that middle incomes have essentially remained static.

The reason it has happened is because of an alliance between corporate ownership (which is only 5% of the population but owns 80% of the stock) and top management. Top management is allowed to make as much money as possible…which in itself is not a bad thing…as long as what they do coincides with the wishes of the ownership. Profits are one thing. But not everything. Most huge corporations these days are locked into monopolistic positions.

If you want cable service you need to go to one or two of the providers in your area. Those are your choices. Not ten. And among the much broader mobile communications providers, your choices are still fewer than ten. Who sells gasoline for your car? BP, EXXON/MOBIL, and half a dozen others. Some industries have only two or three providers. Airlines are almost at their limit. Soon there could be as few as three major airlines.

And why does this condition exist? Because foolish lawmakers have allowed huge bankers to buy up corporations with enormous debt vehicles, creating a windfall for bankers and Wall Street but creating a great deal of insecurity within those corporations. If they fail, they are simply said to have been poorly managed and then absorbed into larger organizations where they will be more secure. Of course they will. The bankers have seen to it that the huge corporations, loaded down with debt, have almost no competition. Consequently, they can set prices wherever they want, claim that size creates lower price and hide the details so that no one knows the truth.

But this isn’t merely conjecture. There are people who measure such things. And not only in the United States. The Organization for Economic Co-operation and Development, the organization of advanced countries, says that U.S. income per capita is near the top, following only behind, Norway, Luxembourg, Singapore, Switzerland and Hong Kong.

But while income distribution has favored the wealthy in all of the advanced world, our gap has been the greatest and at the same time the quality of life for our citizens has grown worse by a greater margin.

For example, two of the big indicators that determine the advancement of a country from third-world to mature status are infant mortality and life expectancy. The United States is among the lowest in the OECD in those two categories.

Inequality might be acceptable, might be, if we were in a stage of our development where rates of upward mobility were very high. But that is not the case. Our situation is exactly the opposite of that. In the analysis of income inequality and upward mobility referred to as The Great Gatsby Curve.

The Great Gatsby Curve measures the amount of mobility lost or gained by individuals as a result of an increase in their parents’ income. In other words, are people with rich parents getting ahead slower, faster, or at the same rate as those with parents of middle income or low income? Norway, Denmark, Sweden, even Germany are very high in this rating. The United States is by far the lowest. In other words, the rich are getting richer and the gap between their kids and the poor kids is getting greater.

There is another indication of this. Again, the OECD has studied this issue and according to tests on 15 year olds, the difference between the literacy level of a child whose parents are in the top ten percent income bracket and a child whose family is in the exact middle income group is as great as the difference between the literacy level of the United States and Azerbaijan

Now, If you would know how income inequality works, you must understand the Gini coefficient. The Gini coefficient was created In 1915 by an Italian sociologist Corrado Gini to measure income distribution. The Gini coefficient is a scale on which a nation or group that has no income would have a zero (0) index. The opposite, a group in which all income is had by one person, would be an index of one (1). So in a situation where there were a group of five and only one person had all the income, that would be a Gini scale of .8, or very high income inequality.

Of course, for a country, the calculations themselves are enormously complex with so many factors and variables to be considered. But the general rule is that a higher number indicates a higher degree of income disparity and a lower number more equality of income distribution. For example, Haiti has a very high Gini coefficient, something like .52 and and Denmark has a low Gini number, in the range of .24.

Let’s take the figures published by several institutions, University of California, Oxford University and others that say basically the same thing. In 2012, the top 1 percent of income earners in the United States, took home about 20% of all the earnings. So the top one percent, again, would be about 1.1 million income earners and the total amount that they earned would be something like $134 billion (out of 13.4 trillion.)

This means that each person in the top 1%, were they all earning equally, would have made approximately $2.4 million apiece. We know that this is not the case. Those in the top .1% actually earned considerably more than ten percent of what the other 1% made. So, you can see that some people are getting exponentially wealthier than the rest of even the wealthy.

Remember, we are talking about annual income. So, taxation make a great difference. For example, if you make 3 million bucks this year and pay only 20% in taxes, you have $2.4 million left, but not just this year but every year that you make $3 million. So in only 3 years you have accumulated in merely numeric calculation a net worth of about $7.5 million. Many, many CEOs make that kind of money today.

The problem is not that they make that kind of money. The problem is that they make it by driving profits for stockholders. So, for example, if it is more profitable to send jobs abroad, these executives…the historical facts show…it is pretty obvious to even the non-economist….will cut jobs in the U.S. and send jobs abroad for their own enrichment. Further, they will take the profits from the corporation—which is owned largely, remember, by someone in the top 1% of income earners—and spend some of them to create legislation to continue that system….high incomes for CEOs and low incomes (or no incomes if the jobs have been sent abroad) for the rest of society. That is where we are right now.

This is the reason we are seeing these absurd social consequences. People being shot in public buildings. Children being shot in schools. Radical preachers creating all kinds of nonsensical predications. And of course, the educational system. After 40 years of Conservative politics in the South and in some rural areas of the country, we have an educational system that has produced non-thinkers. Maybe it is the educational system plus television, but our society is dumbed down to the point that it can no longer cope with the facts.

In any normal society, where the price of health care had been going up for 40 years and had approached a 20% per year increase at some times in some places, and was the highest in the world but only the 36th in quality, a grateful society would have been eager to embrace national health care. Especially since it would mean almost no change, except for greater access and lower cost. And since it would partially be paid for by the People, and partially by a reduction in premiums through greater volume…a natural consequence of the laws of economics.

When the industry forces counter-attacked, trying to protect their gilded incomes at the expense of the Middle and Lower classes, the people should have been able to see through the propaganda. The holes in the arguments were large enough to drive a semi-trailer truck through them. But somewhere between 40% and 50% of the people still fought a law that will make everyone’s lives better.

Income redistribution upwards has a distinct and harmful effect on society. Once selling guns, for example, is making people rich, under the current business thought process…why should they stop selling them or limit their sales for the good of society? After all, food companies sell food with harmful chemicals. Drug companies sell harmful drugs. Military contractors make parts for many outdated weapons systems in all parts of the country to encourage more Congressmen and women to vote for them. The system is both inefficient, riddled with lobbyists compensated with profits, and corrupt.

So, why would higher levels of personal taxation make a difference? Let’s take an example. If your tax level allows you to keep a very large amount of the money you earn, it does seem fair. You made it because of hard work, some genius perhaps, or even making a corporation more efficient. But if you keep 80% of your income you have a different mindset than if you keep 80% up to the first million and then 50% of the next $5 million and let’s say 30% of the next $5 million. As soon as you make a million, almost immediately you are paying the government half. In order not to do that, you invest your money.

The likelihood is that, with good investment advice, which you can get at that level, you will eventually make more money. But your attitude is changed. You are now not so concerned to make that last dollar right now, today, this month….before the end of the year. You suddenly deal with a longer horizon both personally and from a business standpoint.

Now the goal is to create new enterprises with your wealth, continue to make high incomes for a long time, so that you can continue to invest, and make your company solid for the long term. That means good people. And that means good education, training, long-term planning, and a strong domestic economy. Because you are in it for the long haul.

That is why high incomes should be taxed at a higher rate. It suddenly stop being the province, the concern of one person for his or her own benefit and becomes about becoming as rich as possible for the good of society. Because that is how it will turn out and that is how it was meant to be.

But that is not the way it is at present. To further expand on this, let’s distinguish between wealth and income. The fact is that of those at the very tip-top of the income scale, the 10,000 or so at the top, who make $10,000,000 annually do not get much of their income from wages. They get it from interest on assets, rents on property or dividends.

And they get their incomes at a much lower tax rate than those who earn incomes. That is because we consider capital assets have been created as a “good” or benefit to society. The product or service has value. The corporation has value in taxes and employment and non-product or service related benefits such as donations for public organizations like the Red Cross or local libraries, parks or public recreation. But while corporate beneficence has continued, overall corporate value to society has become less and less.

A good example is Walmart, the country’s largest employer. Because manufacturing has been taken out of the country for reasons of improper planning, lack of skill, lack of continuing manufacturing technology and outright greed, corporations in the U.S. pay less in wages, actually cost society rather than offering more than they take away. Walmart for example costs most areas more in the social services costs to its active workers…health care, food stamps, rent subsidies…than It provides in lower consumer prices. But is has entered man markets though political maneuvering, paying off local politicians and creating propaganda which those politicians could use to disguise the ultimate outcomes.

The fact is that the top 1% and corporations do not make up the lion’s share of the income of this country. Corporations pay only something like 7% of all government revenues and the largest corporations often have tax loopholes that allow them to pay nothing on billions of profits—once again—going into the hands of the top 1% who own them.

The top 1% itself is not even an accurate measure of how much is going to the super-rich. It mixes doctors who are paid a high hourly wage but one worth the cost and who are limited by how many hours they can actually work, with heads of giant corporations and those who have inherited huge fortunes. Doctors should have their own special taxation scheme and one entire small segment of the IRS devoted to helping them pay taxes while maximizing their incomes up to a point where they have accumulated enough wealth so that they can spend more time training other doctors and specialists or doing research or simply retire.

Everyone seems to know that about half of Americans paid no income taxes in 2009 and that the top 1 percent paid about 37 percent of the income taxes.

But what most people do not know is that households making $75,000 or less paid more income tases than those making $1 million or more.
And most people do not know that those who pay income tax at the 15% rate brought in more government revenue than all of capital gains taxes plus the income taxes of the top 2 income brackets, which apply to only about the top two percent. So let’s not start weeping for the super-rich. They do not pay the lion’s share of taxes in this country.

And why do half the people in the country pay no income taxes? The answer is both simple and very distressing. The income taxes of the rich have been forced so low that if the very poor were to pay even half the rate of the lowest earners, they would be paying twice what the rich pay per dollar of income. In other words the reason the poor pay no taxes is that the rich pay so little in taxes.
And yet the rich get corporate welfare, government no-bid contracts worth billions. They can send jobs abroad and get tax breaks for it. They can deduct homes and yachts and planes. They have the same use of our roads and airports and harbors. And they have our government’s military protection around the world.

So the top 1% is not an average across a number of people. Half of the top 1% made less than $500,000. And over 80% made less than a million. Does that give you an idea of how concentrated wealth is in this country?

It is time for a change. The Clinton years, which were, by the way, by far the longest sustained period of affluence this country has ever known…that is a fact…proved that by creating large numbers of jobs, wages go up, companies grow, tax revenues flow and the country becomes more affluent from the bottom up. A rising tide floats all boats.

Entry level for the top 1% starts at about $344,000. And it goes up from there. But the real money starts at the top half of the 1% where we’re talking about millions per year. Only about a million people, but they make the biggest hunk of the income in this country no matter how you slice the population. The top 400 Americans make an average of $270 million a year…each, annually.

You really don’t need statistics. Has your income and buying power gone up? Have your savings gone up? Has the amount you have to put on credit gone down? Has the value of the equity in your home and the value of your 401K exceeded what it was in 2006?

If not, you are losing ground. It is time for a change in government. We need representatives, and a President, who will change our way of looking at a free enterprise society. A free enterprise, capitalist society is only good when it benefits all the people. Not all equally, but all with equal opportunity for the best life that each person can accomplish in a society that fairly compensates talent, and skill and hard work.

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