Redistribution of Tax Liability: A Message from the American Working Class

   Over the last 30 years we have been indoctrinated into believing that redistribution of wealth was a black mark against the American Dream, capitalism and the world of free markets. It caters to the notion that “taxation is a form of punishment for success” and that we tax the wealthy for the sole benefit of ‘freeloaders”. The wealthy are the “job creators” has been bellowed from the highest mountain as if it should alarm us to impending doom. The reality is that there has been a redistribution of tax liability from the wealthiest to the bottom 95% and our revenues have plummeted to unsustainable levels. 
   Americans are the most productive workers in the world. Our productivity has realized a steady rise over the last couple of decades and yet our median income has remained flat and is now on its decline. All of the benefits and profits of our increased productivity have benefitted the top. Apparently we have not “earned” it and they did. We are not in control of the levers that give or deny us a raise even for consistent excellent performance. The business model of ‘pay for performance’ is largely a ruse. Those that have benefitted the most are the ones in control of this distribution of wealth. 
   They are the same people in control of the redistribution of tax liability via our tax policy. Our country’s ‘progressive’ tax code has realized a flattening of the tax structure because of a tax code that most Americans do not have access to. Different laws for the different classes. The tax cuts for the wealthiest on the federal level have resulted in the shifting of tax liability to the states and then on to localities as federal dollars dry up. I can remember Lowell Weicker falsely reassuring us that our new state tax was only a ‘temporary’ measure. That was twenty one years ago. 
   Simple math now escapes our congressmen. If we cannot tax the bulk of American wealth, who will pay for a necessary government? One can easily make the argument that we are on a slippery slope to fascism. Corporate power is palpable in all facets of our government and our law making process. 
   Let me say this out loud. I am a job creator. The 95% are the job creators. We collectively create the demand that generates production of goods and services. Starving us is what is starving our economy. The only mechanism to retrieve our fair share of the productivity advances is to tax the top at an appropriate tax rate. If those in control feel our excellent performance does not warrant financial reward, then we should at least compel them to help adequately fund our government and lessen our burden of taxation. When it becomes acceptable that an hourly wage worker should pay a higher effective tax rate than a multi-millionaire, something has gone wrong with the system.
   America needs to redirect the conversation from the misappropriated and inaccurate catch phrase of redistribution of wealth and focus our attention to the distribution of wealth and redistribution of tax liability. These are the true killers of the American Dream.

Disparity of Wealth: How the Growing Disparity Compromises Our Economy and Our Democracy

The record high imbalance of wealth distribution in our country weakens our economy and our ability to sustain economic growth. The disparity of wealth also empowers those who have gained disproportionately to wield that wealth and power to gain an even greater share of the nations’ wealth. The consequence of top heavy wealth distribution causes greater economic fluctuation, instability and the very uncertainty that many companies cite as their reason for lack of capital investments and expanding their employee base. It is more akin to shooting oneself in the foot and then scratching your head trying to figure out how it happened. If we follow the general philosophy that they are being paid these obscene salaries and bonuses and are savvy investors because of their superior intelligence, then we can also assume they know the consequence is helping kill the American economy.

The disparity of wealth we are now experiencing is more severe than before the Great depression. There are key differences that have buffered the latest financial crisis that did not exist before the Great Depression. These include, but are not limited to Unemployment Insurance, the Federal Deposit Insurance Corp (FDIC), Medicaid, Medicare and Social Security. It is reasonable to make the assessment that these “safety nets” did help keep us from falling off the cliff into another Great Depression.

The Tea Party and Occupy Wall St movements represent significant unrest in the general population. These protests are the consequence of the declining economic status and increasing sense of economic injustices. Whether it is tax burdens, failing healthcare systems, lack of opportunity or stolen wealth, economic and social injustice is finding its voice. Protesting is a symptom of major system failures with the record high disparity of wealth a major player in the cause of our system failure.
CBO data for 1979 to 2007
the top 1% realized a 275% $ increase in income
the next 19% realized a 65% $ increase in income
the next 60% realized a 40% $ increase in income
the bottom 18% realized a 18% $ increase in income

Over the last 30 years America has seen the strength and size of our middle class contract and poverty levels rise. It has been well published that the top 10% of income earners and especially the top 1% gained disproportionately in their portion of wealth while the median income in the last ten years has dropped 7%. In a country with rising costs for education, food and healthcare, a greater portion of the median incomes have been allocated to the essentials with education requiring large lending requirements. The rising poverty level creates a greater burden on government to provide essential services to the working poor and poor. The top 1% now owns more wealth than the bottom 90%. It is a challenge to wrap our arms around the concept that 90% represents the bottom. The Dept. of Health and Human Services established poverty level standards in 1963 to monitor the poverty levels. Poverty is a major element in assessing our countries economic health.

                            Graph published in the Huffingtonpost Jan 2012/ Disparity of Wealth by Year

Factors that affect sustained economic growth:

·         Available workforce with necessary education and skills = human capital
·         Economic institutions
·         Political institutions
·         Trade agreements
·         Macroeconomic stability (economic output, unemployment and inflation)

If America’s poor and middle class (this is 90% of Americans) are financially unable to invest in education, the subsequent decrease in human capital will have a negative impact on economic growth. The majority becomes increasingly dependent on government and charity to meet basic needs. The opportunity for upward mobility is significantly diminished. Poorer neighborhoods cannot meet education needs or maintain property values. It is no surprise that the consequence is distressed and unequal opportunities especially for the young members of the community. It opens the gate to a downward cycle that costs more in the end to get out of. The simple notion of a penny of prevention is worth a pound of cure come to my mind.

Debt is high throughout our economic structure. Our large banks are undercapitalized and exposed to considerable high risk from abroad (Europe) and here at home with a long line of law suits pending settlements. Our smaller banks are in a financial healthier position. Our nation’s personal debt has lessened and savings have risen since the near financial collapse. Interest rates remain low and inflation is stable, however the housing market continues to behave as the wounded animal that it is. Our current system of taxation is complicated and does not represent a well-designed progressive taxation system. The steady lowering of the highest tax brackets tax burden and the increases on the middle class has already created a flatter tax base (see graph below). Someone in the top 10% now pays higher effective tax rates than the top 1%. The irresponsible financial system that required taxpayer bailouts to keep the entire system from collapse acts as detached elitists while snubbing our expectation that we would be included in the rescue. They feel they are being victimized unjustly for their reckless and often criminal behavior.

Our political system makes us number one in the world for entrepreneurs and innovation. We have strong patent laws, copy right laws and property rights. Free market and capitalism allow the greatest returns on individual investments. The current political system also allows for exploitation of employees. The national trend has been to undermine collective bargaining rights, employee benefits, employee wages and job creation as jobs are shipped overseas.

Since the beginning of NAFTA (created by Bush Sr. and signed by Clinton) and the CAFTA trade agreements, we have seen our manufacturing jobs transfer to low wage no benefit no labor law countries. It is well understood the trade imbalances are in large part due to lack of enforcement of trade agreements. It is well understood that our largest trading partner China manipulates its currency to gain trade advantages against the USA and other world nations.

Follow the Money:

The amount of money in our politics today is well documented. Sufficient evidence exists to demonstrate that our democracy is being bought by those who have most gained in the last 30 years. It would be negligent if we did not consider the influence of the pharmaceutical companies in the Medicare Prescription Drug Program of 2003. One point is demonstrated when the Kaiser Foundation found that Medicare was prevented from negotiating lower prices and consequently was paying up to 200% more than other programs.

According to the Center for Responsive Politics based on data from the Senate Office of Public Records, total lobbying money spent in 1998 was 1.44 billion has tripled to 3.27 billion in 2011. In the same time period the total number of lobbyist has increased from 10,400 to 12,600. In the for-profit, free market of capitalism we can assume that lobbying has a significant return on investment and the billions being spent add to the bottom line of business in the form of legislation passed in our Congress. The significant gains in wealth give the people holding that wealth a monopoly on our political process when they can afford to buy the favor of our congressman. Ten million dollars buys some very special considerations as all good capitalists believe in a return on their investments.

Distribution of Wealth and Redistribution of Wealth: There is more than one way to move money

The free market system and capitalism make certain assumptions about supply and demand. If the demand is higher than the supply, we should expect higher prices. Under our current model of the anti-regulation vibe, Wall St and large multinational corporations act as a monopoly to manipulate the markets that do not follow supply and demand theory. Oil demand is down in the USA while international supply has remained flat and domestic supplies(more drilling) are up  significantly and yet our prices are rising. It is largely unregulated trade and is vulnerable to market manipulations by commodities traders and others in positions of power.  

Anonymous company pays the greater majority of its’ employees low wages with low benefits. The outcome of this business model is that wages are insufficient for basic essentials such as food, healthcare and a roof over your head. This cost is then shifted to government and charities to assist with basic needs. Meanwhile the 6 heirs of the anonymous company’s wealth equal that of the bottom 30% of Americans. It becomes the tax payer burden to provide social services while the profits and wealth are shifted to the top. At the same time they are paying a lower effective tax rate of 11-17% compared to someone making $180K at 21%. This is a single demonstration of how the cost of living has been shifted to government by the wealthy beneficiaries. Their lower tax rate is derived from their influence on tax policy and redistributes wealth to their bank accounts here, on the Cayman Islands, in Swiss bank accounts and across the world in tax havens.

An effective progressive taxation policy acts to create greater income equality, but not equal incomes as some would argue. When the highest tax rate was 91% with an effective tax rate of 55%, there were still rich, poor and those in the middle. If the nations disposable income rises to the top where it is removed from the economy, the greatest majority loses its buying power and ability to invest in housing and education.  

The protests have started as the majority is being marginalized  and made victims of social and economic injustice. Everyone wants an opportunity to make a better life. Communism failed because of lack of incentives to do better. Unregulated capitalism will die because of lack of opportunity to do better. Americans do not want a third world country of only rich and poor. We want our American Dream back.

As my esteemed history professor has observed....Escalation+polarization= No Compromise>>War

If you like graphs....suggested reading:
"It's the Inequality, Stupid"
Eleven charts that explain what's wrong with America.—By Dave Gilson and Carolyn Perot

| March/April 2011 Issue

Sources:

IMF Report, Income Disparity Global Studies on Sustained Economic Growth 2008

David Ashaver ,Public Infrastructure Investments and Economic Growth, CBO policy report “Policies for Increasing Economic Growth and Employment in the Short Term Jan 2010

Dept of Treasury Oct 2010, An Economic Analysis of Infrastructure Investment