It was diabolical. It happened back in the original Tea Party days, when the wealthy colonial landowners, with brilliant orators such as Patrick Henry smoothing the way, united all Americans in a frenzied bond against the British. Sure, Great Britain considered us a possession. But the genius of the American elitists was in deflecting attention away from their local monopoly over land and money and power and into a passionate hatred for an alternative menace.
Just like today, with terrorists and taxes. Terrorism is the foreign threat, siphoning billions of dollars away from domestic needs such as infrastructure and education, while encumbering our airports and national entry points with excessive security measures.
And the tax issue, dear Tea Partiers, is where we should be on the same side. No taxes, at least for 90% of us. But we keep bickering, and the country’s super-yacht owners keep smiling. They are our common enemy. The wealthiest 1% of Americans, who have been the beneficiaries of the largest redistribution of income since the Great Depression, want the poorest 90% of us to believe that ANY tax will hurt EVERYONE.
The neo-American-Revolution wealthy have deflected attention away from themselves and toward government. As Ronald Reagan famously stated, "government is the problem." But government deregulation turned out to be the problem. Perversely, many of us in the poor 90% still believe in Reagan’s words.
Twenty-five years of shrewd financial strategies, government deregulation, and tax cuts have allowed the richest 1% to TRIPLE their incomes, AFTER TAXES, while the bottom 90% has seen their share drop over 20%. According to IRS figures, the richest 1% took in about 6.5% of America’s total income in 1980. In 2006 it was about 19.5%. That’s a TRILLION dollars a year, one-seventh of America’s total income.
Here’s another way to look at it. Since 1980 our country’s productivity has steadily risen, with total income doubling approximately every 10 years. According to Internal Revenue Service figures, total adjusted gross income (AGI) for the U.S. in 1980 was $1.6 trillion. By 1991 it was $3.5 trillion, and by 2006 $8.1 trillion. If the bottom 90% of America had shared in this prosperity at a level consistent with 1980 incomes, they would be making $45,000 a year instead of $35,000.
Imagine what a middle-income family could do with an extra $10,000 a year.
We need a progressive tax. No new tax on 90% of us, but gradually steeper taxes on the people above that level (those with earnings over $250,000) who have benefited from financial system redistributions, government deregulation, and tax cuts. We would not be ‘spreading the wealth,’ a term often attributed to Obama’s ‘socialist’ tendencies, but instead ‘correcting the 30-year flow’ to the rich.
But, some would ask, don’t the very rich already pay most of the taxes? Just federal income tax. And they pay less than 23% of their incomes in federal income tax. If state and local taxes, social security tax, and excise taxes are included, the lowest-earning half of America pays 24% of their incomes in taxes.
But doesn’t the great wealth of the rich stimulate the economy? Not necessarily. Low-income earners have a higher "Marginal Propensity to Consume," which means that they spend a greater percentage of their overall income on consumption. High-income earners, on the other hand, will save more. The very rich in our country have put much of their money into mansions, yachts, jewels, and art.
But haven’t the very rich lost massive parts of their fortunes in the recession? They’ve lost money, but no more, percentage-wise, than average mid-level earners. As reported by the Associated Press in September 2009, Census Bureau figures show that the top 5% of households have INCREASED their median incomes relative to other earners since 2006.
The result of the reverse flow of money is that the United States has the highest level of economic inequality in the developed world. It has greater inequality than at any time since the Gilded Age of rich industrialists in the late 19th and early 20th centuries.
We need progressive taxes for other reasons, too. In ‘The Impact of Inequality,’ Richard Wilkinson documents the numerous studies that correlate inequality with shorter life expectancies, increased disease and health problems, and even higher murder rates. Most analysts attribute these effects to the stress of ‘relative deprivation’ — trying to survive in a community where economic, educational, and health care disadvantages persist in an otherwise prosperous environment.
Inequality means vital services are being priced beyond the range of average people. Doctors can make more money seeing fewer people at higher rates. In some communities, police and firefighting forces are being reduced.
Inequality means cutbacks in train and bus service, and the loss of teachers, the cancellation of after-school programs in low-income areas, reductions in library hours and park services. Plus, of course, increases in state income taxes, sales taxes, property taxes, gas taxes, cigarette taxes, utility costs, license fees, parking meter rates. Low-income people, who are forced to travel to their jobs on weekends, take the brunt of transit cutbacks. Teacher layoffs increase classroom sizes, further weakening an educational system that should be the heart and soul of our country Young mothers in some cities are being evicted from their apartments.
History demonstrates the effectiveness of progressive taxes. Progressive taxes worked in the 1950s and 1960s, when we had a 90% top income tax rate and a strong middle class. There’s a clear correlation: when the top tax rate decreased, inequality increased.
Several states have implemented more progressive tax systems. And they have apparently not caused wealthy people to transfer their fortunes out-of-state. A 2008 study by Princeton University determined that "the ‘half-millionaire tax,’ at least in New Jersey, appears to be an effective and efficient revenue-generation mechanism, having little impact on migration patterns among half-millionaire households." Similarly, little adverse effect of higher taxes was found in Maryland or Oregon. A study by the California Budget Project revealed that the number of high-income households actually grew during periods of higher income tax rates for top earners. Oregon recently passed Measures 66 and 67, which impose modest income tax increases on the wealthiest residents and raise the corporate minimum tax for the first time in 80 years.
Progressive taxes in these states have helped to preserve public services and repair infrastructure. The same should be done in Illinois, and at the national level. The rich people won’t run away. They know they’ve got it good.
90% of America should pay no new taxes. In fact, we should get some of our money back after 30 years of redistribution. I’ll settle for a modern American Revolution, with most of the Tea Party at my side.
Paul Buchheit teaches at DePaul University. He can be reached at: firstname.lastname@example.org