Thursday, December 29, 2011

Just How Bad Is America's Wealth Gap?

The latest study on America's growing inequality of wealth and income is really quite sobering indeed: we are worse than the Ivory Coast and Pakistan in terms of inequality, and possibly even worse than Ancient Rome was. And Rome was a society built on slave labor and that prided itself on class distinctions, so that really says something. It's especially scary when we remember what eventually happened to the Romans after centuries of such inequality.

Right now, the top 1% of Americans control roughly 40% of the nation's wealth, which is more than twice as much as it was in Rome (16%) or America in 1979 (19%). Income has also seen a yawning chasm as well, with the share of after-tax income doubling from 1976 to 2007 and the share of pre-tax income nearly tripling. From 1979 to 2007, after-tax income skyrocketed a whopping 281%, despite little gains for the bottom 80%. Meanwhile, the average hourly wage has largely stagnated since 1972 when adjusted for inflation, the federal minimum wage has lagged behind inflation since 1968, and real family income actually declined from 1979-2009 for the bottom 20%.   Things are even worse for younger workers.  And the Bush tax cuts, especially for dividends and capital gains, have greatly contributed to the problem.  There are even some billionaires that pay nothing or next to nothing right now due to all the crazy loopholes.  Thus, since 1979, the rich have gotten richer, and the poor have gotten poorer.  And the middle class continues to shrink.

Bottom line: the problem of wealth and income inequality isn't gonna fix itself. The top 1% can easily afford to share their vast wealth and still be very rich, but due to greed they do everything they can not to do so. Thus they need to be taxed more than they are now--a LOT more. To whom much has been given, much will be expected. The TSAP would consider the following graduated scheme of marginal tax rates (loosely adapted from Robert Reich) to be fair:

Under $20,000: no income tax
$20,000 to $50,000: 5%
$50,000 to $90,000: 10%
$90,000 to $150,000: 20%
$150,000 to $250,000, 30%
$250,000 to $1,000,000, 40%
$1,000,000 to $10 million, 50%
over $10 million, 70%

Unlike the current Byzantine tax code, there would be no loopholes or any deductions other than for state and/or local income taxes paid, and a limited amount (up to 10% of income) for charitable donations. Also, all forms of income (wages, interest, dividends, and capital gains) would be taxed equally, unlike the status quo.  And a top marginal rate of 50% or even 70% is actually pretty tame compared to what it was in the 1950s and early 1960s, which hovered around 90%. 

For corporations, a 20% income tax with no loopholes would be infinitely better than the one we have now, with 2/3 or large corporations (including ExxonMobil, GE, B of A, and BP) currently paying zero income taxes while numerous unfortunate small businesses get hit with up to a 35% tax.   Even better would be if the first $500,000 per year was tax-free.

Resurrect the estate tax (aka "death tax") to 50% for all estates worth $2 million or more.  If the Republicans really believe in "meritocracy" like they claim to, why then do they support unlimited tax-free inheritances for the filthy rich?

A modest financial transactions tax (0.25% per transaction) would also raise about $150 billion and charge it all to Wall Street.  Plus, it would help discourage reckless speculation by the parasites that got America into the mess we're in now.  And speaking of Wall Street, other changes are in order as well, including re-imposition of the Glass-Steagall Act that prevailed from 1932 until its repeal in 1999.

In addition, we should seriously consider a one-time 15% wealth tax on those with a net worth above $10 million, similar to the one Donald Trump suggested in 2000 to pay down the national debt.  They would get ten years to pay it, with interest added for every year.  Of course, our debt is much larger now than it was back then (three times larger in fact), but it's a good start nonetheless.

We can just hear the whining and squealing right now.  But taxes are the price we pay for civilization.

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