Distribution of earnings is drastically skewed toward the very top, but regardless, with a GDP that’s grown 14 times larger since 1970, at least our nation must be doing well as a whole — right? Well . . . not so quick.
While the very rich have taken a constantly growing portion of the national pie, the same fallacious neoclassical economic policy that started the drain has steadily reduced their tax burden. American infrastructure is falling apart; manufacturing has all but vanished; jobs have disappeared overseas, and average wages are becoming increasingly depressed. The federal government has tried to address some of these issues, but with a debt currently pushing $13 trillion, Americans are ill at ease with more government spending. But, the bottom line is that the federal government has not the revenue to do anything without further increasing the debt.
Again, the problem isn’t lack of American productivity. The problem is a broken social contract with the American people. Our system is a democratic form of capitalism. Capitalism stresses the virtue of the free market and brings us more value and lower prices as consumers, along with higher returns as investors. American market economics have thrived for the past several decades. This is evidenced in our GDP. But what sets America apart is not our capitalism — China is now a capitalist society. The American difference is our democracy. But sadly, while our free market is triumphant, our democracy is in shambles.
Nobody wants to see their hard-earned money siphoned away in the form of taxes, but we all must do our part to help fund the shared services that government provides. This burden was once metered out in accordance with the degree to which benefit was gained from the economy. Our progressive income tax system is predicated on the idea that the more an individual earns, the more benefit they extract from the system, and the better their capacity to chip in with taxes. The concept was to fund needed governmental services while mitigating the impact on the average American’s ability to acquire the basic necessities of life. In order to achieve this, tax tables were designed to take a minimum from the earnings needed for essentials, and a progressively larger chunk as discretionary income grew.
Under Republican President, Dwight D. Eisenhower, the top marginal tax bracket was set at 91 percent. Under President John F. Kennedy, the top rate was cut to 70 percent. That rate remained relatively constant until 1980 and the birth of Reaganomics. Since then it’s been cut in half to 35 percent. There’s no mystery who benefitted from these changes, but the story doesn’t end there. Equally troubling as the top rate is the threshold at which it takes effect. Since 1942, that point has ranged between $200 thousand and $400 thousand. But it wasn’t always such. From 1936 until 1942, the threshold for the top bracket was $5 million, which equates to around $75 million in today’s dollars. In 1941, the associated tax rate for that top bracket was 81.1 percent. For 2010, the top rate kicks in at $373,650 and the 35 percent applies to all incomes above that point.
The progressive structure was intended to ensure that everyone pays the same percentage of earnings up to each stepped threshold. Those folk who paid 81.1 percent in 1941 did so only on the portion of their earnings over $5 million. Today, a person earning $50,000 would have their earnings above $34,000 taxed at 25 percent. Another taxpayer who earns $250,000 would find their top marginal rate to be 33 percent. In this example, the higher income individual makes 5 times the earnings and pays an additional 8 percent at their highest step. Does this sound fair to you? It does to me, and I’ve spent most of my adult life as the guy paying the larger chunk. What bothers me is that the equity of this example is soon lost when the truly rich enter the picture. You have to ask yourself, what possible rationale is there for the person earning 5 times more again, or $1.25 million, only paying an additional 2 percent? Why do the progressive steps end where they do?
The answer is simple — there is no legitimate rationale; there’s only a failure of our political system to serve The People. Our government has been bought by the rich, and our media is owned by them. They’ve managed to play on middle-class fears and cast “redistribution of wealth” as a negative term that evokes visions of hard-earned dollars becoming handouts to the needy (or as more often portrayed — the lazy). This diversion has drawn attention while the real redistribution of wealth was occurring right under our noses. Their misdirection has been extremely successful. They managed to effectively redistribute the wealth directly to themselves, and they did so at the expense of the middle class.
It’s time for the heart of America to open their eyes and stop believing the lies perpetrated on us by the new American royalty. Trickle-down was a fallacy, and Reaganomics an unmitigated disaster for the average American. The policies of the past 30 years have done nothing but serve the rich and further widen the gap between the haves and have-nots. The call for small government is nothing more than code talk for capitalism over democracy and further deterioration of the middle class. We don’t need small government; we need effective, right-sized government. We need jobs and education and sound energy policy. We need infrastructure, emergency services, healthcare, security . . . and we need the tax revenues to pay for them without piling on more debt.
It time we wake up. We’ve been sold a bad bill of goods. The American dream is being stolen, and it isn’t by the poor. The thieves are the very rich, and they want us distracted. We must stop buying their diversion and keep our eye on the ball. We can no longer afford to allow ourselves to be taken in by sound bites and talking points. Instead, we must seek the facts and make up our own minds.
We are The People, and it’s up to Us to save America.