I wrote a post down below (A Tax Primer) that elicited response from a couple of conservatives, and could well have led to one of those tit-for-tat exchanges that covers all the details in great detail while missing the point entirely. But I wasn’t in the mood. I wrote about how people of ordinary means are taxed at a higher level than people of extraordinary means, and how this is going on right under our noses. The gist of the response is that investors are performing a function too important to tax at regular levels, about how wealth creation is too important to mess with, etc. There’s even a reference to Cuba in one of the responses. That’s another form of Godwin’s Law, I think (any discussion of economics will eventually devolve into accusations of communism).
Yet they miss the basic point: The flow of wealth is upward. Investors don’t create wealth – they harvest it, reallocate it, store it for themselves in the form of second homes and fat bank accounts. They perform a useful function, but not so vital that we need to give them special tax treatment. We’ve had periods when taxes on upper income levels were very high, in the fifties, sixties, and seventies, growth rates were high, prosperity was more widely spread, there was less inequality. Life was generally getting better for most people.
The supply-siders have had their way now since 1980, and more so since 2000. Since George W. Bush has become president, five million people have slipped into poverty, eight million have lost their health insurance, median household income has gone down thirteen hundred dollars, three million manufacturing jobs have been lost, three million Americans have lost their pensions, home foreclosures are now the highest on record since the Great Depression, the personal savings rate is below zero (which hasn’t happened since the Great Depression), real earnings of college graduates have dropped five percent, entry level wages have fallen over three percent, wages and salaries are now the lowest percentage of GDP since 1929.
That’s during a period of low taxation of wealth. The underlying principle is that the wealthy are the means by which we accumulate wealth for investment, yet in prior times there was plenty to invest, even with high marginal rates. It sounds very reasonable, but doesn’t play out in the real world.
There’s class warfare going on, but it is not as normally pictured – it’s not the rabble pounding on the doors of the mansions – quite the opposite. The wealthy are slowly bleeding the wealth creators, the workers, investors, small business owners, and hoarding that wealth. Lately, they have taken to encouraging people to use their homes as credit cards, and have so managed to tap the last great source of middle class wealth – home equity. We have seen an enormous transfer of wealth these past thirty years, upward.
I am an ordinary person of modest means. My marginal rate is 46%. It’s no accident. I’m not politically powerful, I don’t have a lobbyist working for me, or a tax foundation to intellectualize the theft. Wealthy people have now rewritten the tax code so that their type of income is taxed at a maximum rate of 15%. That’s not a reflection of economic need, nor does it serve the greater good. It merely reflects who has power, who doesn’t.
Taxation is both a means of raising revenue and a tool by which we increase equality. Progressive taxation is well-established and widely practiced, and we are no less free because of it. We simply have more equality in society, a larger middle class, and more opportunity for people to achieve better lives. And taxation itself, which the right wing presumes to be an economic sin, often enough lead to wiser use of money for public good. There’s little difference between public and private spending other than money used to build a bridge or school offers greater benefit to more people than yachts, mansions and casinos.
We once had marginal tax rates that hit as high as 70% on the equivalent of $3 million in income, inflation adjusted. We also had growth widespread prosperity, and an expanding middle class. Progressive taxation did not hurt us – in terms of all of us, greater good, with was a public benefit.
Conservatives are fundamentally wrong about the way the world works. They are poster children for the power of an ideology crafted by the wealthy in order to justify wealth accumulation as the be-all-end-all, as if it were the only meaningful form of freedom. They have given us what we have now – a broken economy and widespread poverty, wide divisions of wealth ownership and people kept afloat by borrowing because wages failed to keep up with productivity. The fruit of our labor percolated up – nothing has trickled down.
Friday, October 31 Wall Street Journal, page one: Banks Owe Billions to Executives. They’ve had a bailout, but companies like Goldman Sachs are contractually obligated to pay billions to the very executives who drove them into a ditch. In the end, taxpayers will foot the bill.
That’s how our economy works, in microcosm. In this election Barack Obama has made a small gesture to undo some of the injustice – a middle class tax cut. It’s a smart thing – it puts money in the hands of people who need it and actually spend it, and we’ll all do well by it. But listen to the right wing – “Socialism!”, as if sucking off the wealth of the middle classes for accumulation above is somehow more worthy. He wants to take a (very) small step back towards progressivity. I hope he wins, I hope he succeeds. We’ll all be better off.
Piece of Mindful 