How the Rich Soaked the Rest of Us

[one...two...tree 2,762]

When the Cadillac Eldorado made its debut in the 1950s, wealthy Americans were paying a top rate of tax of 90%; today, the top rate of tax is 35%.

by Richard Wolff

Over the last half century, the richest Americans have shifted the burden of the federal individual income tax off themselves and onto everybody else. The three convenient and accurate Wikipedia graphs below show the details. The first graph compares the official tax rates paid by the top and bottom income earners. Note especially that from the end of the second world war into the early 1960s, the highest income earners paid a tax rate over 90% for many years. Today, the top earners pay a rate of only 35%. Note also how the gap between the rates paid by the richest and the poorest has narrowed. If we take into account the many loopholes the rich can and do use far more than the poor, the gap narrows even more.

One conclusion is clear and obvious: the richest Americans have dramatically lowered their income tax burden since 1945, both absolutely and relative to the tax burdens of the middle income groups and the poor.

Consider two further points based on this graph: first, if the highest income earners today were required to pay the same rate that they paid for many years after 1945, the federal government would need far lower deficits to support the private economy through its current crisis; and second, those tax-the-rich years after 1945 experienced far lower unemployment and far faster economic growth than we have had for years.

Historical tax rates for the highest and lowest income earners

The lower taxes the rich got for themselves are one reason why they have become so much richer over the last half century. Just as their tax rates started to come down from their 1960s heights, so their shares of the total national income began their rise. As the two other Wikipedia graphs below show, we have now returned to the extreme inequality of income that characterised the US a century ago.

The graph above shows the portion/percentage of total national income taken by the top 1%, the top tenth of a percent, and the top 100th of a percent of individuals and families: the richest of the rich. The third graph compares what happened to the after-tax household incomes of Americans from 1979 to 2005 (adjusted for inflation). The bottom fifth of poorest citizens saw their income barely rise at all. The middle fifth of income earners saw their after-tax household income rise by less than 25%. Meanwhile, the top 1 % of households saw their after-tax household incomes rise by 175%.

In simplest terms, the richest Americans have done by far the best over the last 30 years, they are more able to pay taxes today than they have been in many decades, and they are more able to pay than other Americans by a far wider margin. At a time of national economic crisis, especially, they can and should contribute far more in taxes.

Instead, a rather vicious cycle has been at work for years. Reduced taxes on the rich leave them with more money to influence politicians and politics. Their influence wins them further tax reductions, which gives them still more money to put to political use. When the loss of tax revenue from the rich worsens already strained government budgets, the rich press politicians to cut public services and government jobs and not even debate a return to the higher taxes the rich used to pay. So it goes – from Washington, to Wisconsin, to New York City.

Share of national income taken by top tranches of earners

How do the rich justify and excuse this record? They claim that they can invest the money they save from taxes and thereby create jobs, etc. But do they? In fact, cutting rich people's taxes is often very bad for the rest of us (beyond the worsening inequality and hobbled government it produces).

Several examples show this. First, a good part of the money the rich save from taxes is then lent by them to the government (in the form of buying US Treasury securities for their personal investment portfolios). It would obviously be better for the government to tax the rich to maintain its expenditures, and thereby avoid deficits and debts. Then the government would not need to tax the rest of us to pay interest on those debts to the rich.

Second, the richest Americans take the money they save from taxes and invest big parts of it in China, India and elsewhere. That often produces more jobs over there, fewer jobs here, and more imports of goods produced abroad. US dollars flow out to pay for those imports and so accumulate in the hands of foreign banks and foreign governments. They, in turn, lend from that wealth to the US government because it does not tax our rich, and so we get taxed to pay for the interest Washington has to give those foreign banks and governments. The largest single recipient of such interest payments today is the People's Republic of China.

Third, the richest Americans take the money they don't pay in taxes and invest it in hedge funds and with stockbrokers to make profitable investments. These days, that often means speculating in oil and food, which drives up their prices, undermines economic recovery for the mass of Americans, and produces acute suffering around the globe. Those hedge funds and brokers likewise use part of the money rich people save from taxes to speculate in the US stock markets. That has recently driven stock prices higher: hence, the stock market recovery. And that mostly helps – you guessed it – the richest Americans who own most of the stocks.

Relative increases in net household incomes of Americans from 1979 to 2005

The one kind of significant wealth average Americans own, if they own any, is their individual home. And home values remain deeply depressed: no recovery there.

Cutting the taxes on the rich in no way guarantees social benefits from what they may choose to do with their money. Indeed, their choices can worsen economic conditions for the mass of people. These days, that is exactly what they are doing.

© 2011 Guardian Media

.......

Richard D Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, where he taught economics from 1973 to 2008. He is currently a visiting professor in the graduate program in international affairs of the New School University, New York City. Richard also teaches classes regularly at the Brecht Forum in Manhattan.

[웃 910]

Don't read this kind of stuff. It will pollute your mind.

[^_^ 5,021]

Don't read this kind of stuff. It will pollute your mind.

Politics is one thing. Demotivating yourself is a whole other. That's what this does.

[Ban Hammer 13,352]

let me know when steven is ranting about the fed reserve.

[lostinblue 1,989]

“ It would obviously be better for the government to tax the rich to maintain its expenditures, and thereby avoid deficits and debts. ”Liberal thinking pure and simple.....How about the government cut its expenditures, and thereby avoid deficits and debts.

[one...two...tree 2,762]

" It would obviously be better for the government to tax the rich to maintain its expenditures, and thereby avoid deficits and debts. "Liberal thinking pure and simple.....How about the government cut its expenditures, and thereby avoid deficits and debts.

How about realizing that the one of the most effective ways to prevent income equality is through a progressive tax policy? Tax policy effects economic behavior, like how much executive pay has gone up in ratio to the lowest paid employee. The Middle Class is disappearing. Incomes have remained static for most Americans whose income is below $200k. These are all effects of lowering the tax burden on the wealthiest Americans.

[I AM NOT THAT GUY 5,715]

Ah, yes, the the crying inequalities in the distribution of wealth*.

* http://www.anu.edu.au/polsci/marx/classics/manifesto.html

[one...two...tree 2,762]

Ah, yes, the the crying inequalities in the distribution of wealth*.

* http://www.anu.edu.a.../manifesto.html

Those progressive tax policies of yesteryear have a proven track record of working. It helped create the largest Middle Class this country has ever seen. The economists and policy experts back then obviously understood what they were doing. They understood that wealth doesn't happen in a vacuum. If the wealthy don't want to pay that much in taxes, then they're income levels will drop. Executive pay will return to the ratios of yesteryear. Tax policies can and have effected economic behavior and that's what progressive taxation is for.

[I AM NOT THAT GUY 5,715]

that's what progressive taxation is for.

Wealth redistribution? Gothca. Next is land reform.

Edited March 3, 2011 by Some Old Guy

[luckytxn 2,264]

Just tax them at 100% and be done with it. Then we have no rich to be mad at and the world will be a better place. We can then have our Socialist Utopia and live happily ever after.

[one...two...tree 2,762]

Wealth redistribution? Gothca. Next is land reform.

Those stuffy, elitist economists would explain to you that wealth distribution happens all the time, like when a manufacturer moves offshore to exploit Third World labor in order to increase their profits, that's wealth distribution. When you pay someone less than what their labor is worth, that's wealth distribution. Take away worker's negotiating power and remove progressive tax policies and watch the income disparity grow....which is what has been happening over the last 30 years or so.

[one...two...tree 2,762]

Just tax them at 100% and be done with it. Then we have no rich to be mad at and the world will be a better place. We can then have our Socialist Utopia and live happily ever after.

Don't know much about the history of tax policy in this country, Mr. Socialist-lite?

[one...two...tree 2,762]

A good explanation of distribution of wealth.

(Libertarians) argue that "all taxation is theft", and that America would be a better place if that damned government would just stop "stealing our money". This ignores the fundamental principle that the government often acts as the only force that can stop the theft that is inherent when a laissez-faire (let it be) economy turns into a caveat-emptor (let the buyer beware) form of predatory capitalism that impoverishes everyone except a select few at the top.

Look at it this way. Imagine the olden days when everyone was relatively self-reliant. You were dependent on the fruits of your own labor to forge your own material existence in the wilderness, and your quality of life (generically speaking) depended on your own hard work and foresight. Those who chopped down 100 trees in the forest (to build their cabin and trade for goods) got to keep all 100. A local government might assert it's authority and claim 25 of these, but that would still leave you with 75 trees. In today's system, you work for a large, multinational company that takes 96 of every 100 trees you cut down, and the government claims ¼ of what you have left (1 tree), leaving you with only 3. To blame the government for the fact that you only get to keep 3 trees out of 100 ignores the fact that your corporate masters are stealing 96 of them; it misses the point entirely.

All wealth is created by labor, by working men and women who actually build and maintain things. The portion of the wealth they create that they get to keep is getting less and less, and how hard they sacrifice for work is getting more and more since fiscal conservatism became dominant in 1980. An increasing portion of their labor is getting extracted by the wealthy and extreme wealthy.

From 1980 to 2005, more than 80 percent of total increase in Americans' income went to the top 1 percent.

http://newsjunkiepos...ssive-taxation/

Edited March 3, 2011 by 8TBVBN

[luckytxn 2,264]

Don't know much about the history of tax policy in this country, Mr. Socialist-lite?

Actually I may have read something on it lately. Also other things. Did what I say before sound wrong?

[ready4ONE 5,400]

Actually I may have read something on it lately. Also other things. Did what I say before sound wrong?

Not if you enjoy the wealthy taking a leak on your head...