Economic Inequality is the Core Problem
Posted: Friday, February 13, 2009
by Joel Hirschhorn
http://www.delusionaldemocracy.com
Delusional prosperity is the problem. One terrible aspect of the American economic system that never gets enough attention is called economic inequality, which is essentially an unfair, unjust bias built into the system that channels a huge fraction of the nation's income and wealth to a relatively small, elite fraction of the population. It is something that is actually measured by the government and others. There has been rising economic inequality for many years.
Eventually a turning point happened that is best understood by a corruption of the political system by a rich Upper Class as well as many corporate interests. They were able to promote public policies that promoted economic inequality so that the rich got much richer and everyone else started to suffer, even though there was economic growth and national wealth creation. Obviously, some tax policies promote economic inequality.
In our current economic meltdown it would be terrific if there was more attention to addressing public policies that attack economic inequality.
Here are some incredible data that shows what has happened over time.
The IRS reports on the top 400
Here is what's important: They paid a mere 17.2 percent of that in federal income tax, a smaller share of their income than the rich right below them ended up paying in tax. In 2006,
Now consider 1955, when America's top 400 collected on average, in dollars inflation adjusted to 2006 levels, $12.3 million in income each, which clearly is an amazingly tiny fraction of the over $263 million in average income the top 400 reported in 2006. Here is another profound difference between the 1955 and 2006 top 400s, a tax difference. In 1955, the top 400, after exploiting every tax loophole they could find, paid 51.2 percent of their incomes in federal tax, almost triple the 17.2 percent tax rate on the 2006 top 400. That much higher tax rate did not deter people from working hard, inventing stuff or starting new ventures to make big money.
If the 2006 top 400 had paid taxes at the same rate as the top 400 in 1955, the IRS would have collected another $90 billion in revenue in that one year. Think about that. Think about what could have been collected over many years if the superrich did not have such a tax advantage. Think about that in the context of our incredible national debt. One use of all that incredible untaxed wealth was to maintain control of the political system. Billions and billions of dollars have been piling up in the pockets of
Attacking economic inequality could take many forms, including better tax policies, such as much, much higher tax rates on the richest people, and, as now being discussed, curbs on the obscene incomes of CEOs and others in the private sector.
As to the Obama administration, consider these facts: Mary Schapiro who is the new chair of the Securities and Exchange Commission received way over $1 million from two companies for deferred compensation and a lump sum payment of over $7 million from another entity. The new Treasury Secretary who was a tax dodger received over $400,000 in severance from the Federal Reserve Bank of
My point is that we have a plutocracy running the nation that is bipartisan and the elite, powerful people are also overwhelmingly exceptionally rich. Which means that we are unlikely to see effective, new public policies that attack economic inequality. In turn, this means that most of the nation's income and wealth will continue to flow to relatively few people as out middle class continues to merge into a large Lower Class. This is not the change many of us have been waiting for. For far too many years we have had nothing but delusional prosperity and that is likely to continue, unless there is more public uproar about achieving economic justice not just economic recovery.
This Article has been viewed 2,150 times. (Not updated in real-time.)
Top-level comments on this article: (6 total)Thanks for gathering and sharing this much helpful information in one brief article. What can be done about this vast economic inequality is the frustrating part. The solution I prefer is one that will take the low incomers up to higher income levels rather than one that will bring down the higher incomers to lower levels. In other words, spread the prosperity, not the misery, more equally. ~mogama~
As just another of what appears to be an endless amount of data on obscene behavior in our crashing economy consider this: For nearly 700 lucky Merrill Lynch employees, 2008 was a million-dollar year, even though the brokerage firm lost $27 billion. The company distributed $3.6 billion in its 2008 bonus pool. Bank of America bought the company. As to the concept of inequality note that if that $3.6 billion had been evenly disbursed among Merrill’s work force each person would have received about $91,000. The top four bonus recipients received a total of $121 million. 20 people were paid more than $8 million and 53 people were paid more than $5 million EACH. It is important to understand, therefore, that (listen Mogama) there really is just so much money and wealth to go around. Give most of it to relatively few and, inevitably, many more people do NOT get it.
It is too bad that you exerted so much effort on an article that is so distorted by your prejudices. Any analysis would show the only fair tax system is a flat rate--tax everyone the same percentage rather than give special breaks to those with political influence.Also there is nothing fairer and more productive of wealth for all than rewarding the most productive. No company will survive by paying someone more than they contribute nor will an employee contribute for long unless he is paid what he is worth.Nothing works better than the marketplace, certainly not government.So monopolies are ok? Or companies which hire lobbyists to twist the arms of legislators to bias the system toward their company? How about blatant bribery or extortion? Ponsi schemes? Price fixing? How about allowing big business to make a profit by using / abusing resources that should be available to all (air, public land, water, roadways, airwaves)? Then there are businesses which earn their profit from buying their raw product from terrorist countries, destabilizing the World-wide balance of power and funding wars which the U.S. then has to fight against, and U.S. citizens have to pay for. These practices are all part of a free market society, but they are not in the best interests of the population as a whole. It is the role of the government to regulate for the benefit of the whole, not just a few businesses who make political contributions.
The free market system is not all-good, nor is government all-bad. After the economic failures of the past 8 years I believe it is reasonable to believe that it is time for a shift in the balance between these two.
For the record, the reality is that the rich currently pay a far lower percentage of their income in taxes than the middle class. The "fair-tax" seems like a good solution to this.
Interesting information, Joel. Economic inequity sounds very similar to a "shrinking middle class". I recall learning in a high school economics class years ago that preceding the fall of every great nation was the disappearance of the middle class. Indeed every one of the "terrorist" countries that oppose the United States that I can think of have a non-existent or very small middle class. They pretty much only have super-rich and super-poor.
So the question is, how does the federal government make conditions favorable to expand the middle class?
Thanks Bruce for making many good and valid points. In theory it was predicted that when economic inequality got too big there would be revolution as the Lower Class rebelled against the Upper Class. But in recent decades even though economic inequality has reached historic highs we have rarely seen open rebellion. Mexico has the worst economic inequality in Latin America, yet rather than rebellion what we saw was massive numbers of their poor people leaving the country and their political system crumbling as major criminal enterprises exerted power. Here in the US where economic inequality has reached unpredented highs the Upper Class was able to pervert public policies, especially under the George W. Bush administration. All this resulted in a massive siphoning off of the nation's wealth to the greedy and, in my view, criminal class of corporate bigwigs and so many in the banking, mortgage and financial areas (think Madoff). As to taxes, the less the very wealthy pay, the more everyone else must pay and that means the middle class, because the poorest pay little or no taxes. So, the financial condition of the middle class has been sliding downhill for a long time. It was masked by several factors, including: imports of relatively cheap goods (especially from China) that allowed people to maintain unhealthy materialsim despite poor finances; abundant credit for consumers that just put them in long term debt; incredibly stupid home mortgages that were designed to sucker people in and a rigged real estate market (the bubble) that had to eventually burst (many people sucked money from mortgages as just another form of borrowing). Meanwhile, middle class workers were not receiving anything near the kinds of increases in wages that the Upper Class was obtaining. Personally, I want to see much higher income and other taxes on the very wealthy, including luxury taxes on many of the incredibly expensive products and services they buy.
Just came across another terrific piece of information about Japan that has the second largest world economy: Japan's top 100 execs average $1.5 million. The U.S. average: $13.3 million.
We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.