We’re led to believe that the recession has impacted everyone, especially the rich. Not only is that false, but the evidence indicates that very rich people have been a primary cause of our recent economic turndown.
According to IRS figures, from 1980 to 2006 the richest 1% of America nearly tripled their after-tax percentage of our nation’s total income, while the bottom 90% has seen their share drop over 20%.
They TRIPLED their share of total national income in 25 years. AFTER TAXES. The richest 1% took in about 6.5% of America’s total income in 1980. In 2006 it was about 19.5%.
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. 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.
What a middle-income family could do with an extra $10,000 a year! But the richest 1% took that money.
But Internal Revenue Service figures show that almost a fifth of our country’s income goes to the richest 1% of Americans, and almost half to the richest 10%. The distribution of wealth is even more skewed, with the richest 1% of Americans owning more than the poorest 90%.
It is argued that in the past two years the very rich have lost massive parts of their fortunes. But they’ve lost no more, percentage-wise, than average mid-level earners. As reported by the Washington Examiner 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 flow of income from the poor to the rich is due in great part to the overall rise in the stock market, combined with new and varied trading techniques that favor financially savvy investors. Restructuring the tax rates to correct this imbalance is not only fair, but probably necessary to our economic and political stability.
Yet remarkably, local initiatives to balance the budget generally target middle-income earners. We’re faced with regressive state income taxes, the sales tax, new property taxes, gas taxes, cigarette taxes, utility costs, license fees, and parking meter rates, and if this isn’t enough, there might be a cutback on after-school programs in low-income areas, or a cutback on library or park services.
We rarely hear serious proposals to return income tax rates to the levels that helped to build a strong middle class a half-century ago. Instead we hear arguments based on emotion rather than facts. Like the argument that the rich pay most of the taxes. It’s true that the top 1% pays 40% of all federal income taxes. But federal taxes are a small part of the tax burden on lower- and middle-income people. Based on recent data from the U.S. Congressional Budget Office and the Internal Revenue Service, the total of all state and local taxes, social security taxes, and excise taxes (gasoline, alcohol, tobacco) consumes 21% of the annual incomes of the poorest half of America. For the richest 1% of Americans, the same taxes consume 7% of their incomes.
In fact, studies have shown that total taxes and utilities for the poor consume over 40% of their incomes, while total taxes and utilities for the rich consume a smaller percentage. And it may even be worse. High-interest mortgage loans, auto loans, payday loans, refund anticipation loans, and medical debt loans primarily target low-income families.
Middle-class Americans don’t take this lying down. Numerous studies show a correlation between economic inequality and violence. For example, in her 2004 book “Inequality & Violence in the United States: Casualties of Capitalism,” Barbara Chasin finds that street violence is linked to excessive profits, although the connection is generally ignored by the media and the courts.
But it’s burdensome to confront these substantial, long-term societal issues. Taking on the rich, even after the injustice of their 25-year windfall, is difficult, not only because of their resistance but also because of the minimal chances for success in tax reform. It’s a lot easier to nibble away at the citizens without the money and the know-how and the big voice in government.
Adam Smith, the father of capitalism, recognized that reasonable limits must be in place to curb abuses in a free-market system. A progressive income tax is the best way to do this, no matter how much yelling we hear from the top.
PAUL BUCHHEIT teaches in the School for New Learning at DePaul University.
