Monday, September 19, 2011

Tax Cuts and American Dreams

"The US has the most unequal distribution of wealth and income of any major country in the industrialized world. During the Bush years, the wealthiest 400 Americans saw their wealth increase by some $400 billion and are collectively worth over $1.3 trillion. Today, the top one percent owns more wealth than the bottom 90% and earns more income than the bottom 50%. Meanwhile, a record-breaking 50 million Americans have no health insurance and nearly 44 million Americans live below the poverty line."
The above is a quote taken from Senator Bernie Sanders (I-VT) Facebook page today.  I read many similar statistics from Senator Sanders when reading The Speech, the book relaying his filibuster of the extension of the Bush tax cuts last December.

While individuals who are progressive at least have some familiarity with these types of statistics, I wonder how much of the general public does.  It is on my mind at the present as debates on jobs and debt are again becoming the focus between Congress and the White House, and I have already heard some protests of class warfare in response to President Obama's debt reduction plans that calls for letting the Bush era tax cuts expire on those making over $250,000 and increasing those taxes on individuals making over $1,000,000 by closing some of their available tax deductions.

Generally, I support this portion of the President's plan; I have long felt that substantial tax reform is needed to equalize the tax system, and far beyond what the President is proposing here.  The most common responsive argument one hears is that we can't let these Bush-era tax cuts (2003 passage, I believe) expire because those are the job creators, and they need that tax cut to create jobs.  Similarly, we can't "raise" taxes, even by eliminating available deductions on the super wealthy, because they again, need that benefit to create jobs.  I do not claim to be an economist, but my first impression is that the Bush era tax cuts have been in place for 8 years, and as a country we have had essentially zilch in terms of new job growth over that time.  Maybe there is a lot of reasons for that to happen; but it also stands to reason that such a fact is good evidence that these particular tax cuts are not doing anything significant to create jobs and stimulate the economy.  (See this chart)

Further, as to the general premise that we can't raise taxes on the super wealthy, taxes today are lower on the top income wage earners in our country than they have been pretty much since the income tax has existed.  Consider these statistics - in the 1970s, the top marginal tax rate was generally around 70%; in the 1980s, it started at 70% and was cut, through Reagan's policies, down to about 28% at the end of the decade; in the 1990s, it was quickly raised to 39% early in the decade, and stayed there; in the 2000s, it was cut by Bush to 35% (which, when people talking about letting the Bush era tax cuts expire, they mean letting them return to the 39.6% rate of the 1990s, still well below the 70% is was decades ago).  (info from this site).  Senator Sanders, in his speech last December, pointed out that during the same time frame, we have seen a significant change in the distribution of wealth in our country - 

"In the 1970s, the top 1 percent only made something like 8 percent of total income. In the 1980s it rose to 10 to 14 percent. In the late 1990s, it was 15 percent to 19 percent. In 2005 it passed 21 percent. And in 2007, the top 1 percent received 23 percent of all the income earned in this country."
So, generally, a trend emerges, as the tax rates went down, the amount of income made solely by the top 1 percent of our country increased dramatically.  So there is obviously a relationship between tax cuts and income, but I'm not sure it is what most people think.

Anyway, what got me thinking and writing this post was the first quote above from Senator Sanders.  I love living in the United States.  I read stories of historical immigrants and modern immigrants about what the idea of America represents, and the opportunity it gives on so many levels, religious, economic, cultural, etc, and it truly makes you swell with pride over our country.  But then you consider the reality that we have the most unequal distribution of wealth of any developed country in the world.  That's just plain horrible.  Obviously, I have my ideas on what causes that and how to change that, some of it mentioned above; but I don't claim to know that those are the answers.  I do believe that trying the same economic policy of the last 30 years, chiefly tax cuts, which seems to have created or significantly worsen the problem, is foolishness.

How long will we continue to ignore this problem, and believe that our government has no role in correcting it?  When will we, as a people, face this reality and demand change?

The pull yourself up by your bootstraps-American Dream meme is important, and should be preserved.  We must remember that those stories often come to us in individual circumstances with emotional impact that has staying power in our collective consciousness, while we often forget about the reality that statistics present to us.   Until we do something to change our governing policy towards our systemic economic issues, these statistics will continue to deal us the truth regarding our country's current status.  And those great stories will become fewer and fewer, until they become a thing of the past.

We need more of those stories.