“If you’re on the side where all the hotshots are, then (life’s) a game all right– I’ll admit that. But if you’re on the other side, where there aren’t any hotshots, then what’s a game about it?” – Holden Caulfield
Back in the 1950s, when old Holden Caulfield was lambasting members of the establishment for being “phonies,” most Americans– even working-class Americans– could afford a house, two kids, a car, and a two-week vacation on one income. Yes, that’s right– one income!
But there was one big difference between then and now. Back then, we had strict corporate oversight and accountability, strong labor unions, and a fair tax system. A lot has already been written about the lack of corporate oversight and accountability in our current financial crisis, and everyone knows labor unions have lost much of their power and influence over the last few decades, but most individuals are not aware of how radically our tax system has shifted since the 1950s; how it has gone from being a very progressive system designed to spread the wealth to average Americans to a system that rewards the wealthiest, most well-connected investors and the largest, most powerful corporations.
Here are the facts. In the 1950s, the tax rate on top-bracket individuals was over 91%. Seems incredible, doesn’t it? But that’s what it was– check the tax tables if you don’t believe me. http://www.ntu.org/main/page.php?PageID=19
Naturally there were loopholes in the system, and wealthy individuals did not effectively pay the entire 91%, but they did pay a high percentage of it because there weren’t as many loopholes as there are today. Today, top-bracket individuals pay taxes at a 35% rate, but with all the loopholes, they pay much less than that. Also, many wealthy individuals earn their livelihood from capital gains, which are taxed at 15%, compared to the 25-30% range most middle-class individuals pay on ordinary income. As a result, wealthy individuals are accumulating more and more net worth.
According to the most recent Federal Reserve figures, the top one percent of income earners in the United States today, those earning over $315,000 per year, own over 40% of the country’s net assets. Ironically, these upper bracket individuals, who seem quite well off to most people, are like minimum-wage workers compared to the upper half percent of the one percent, individuals in the billionaire class, like Bill Gates or Warren Buffet.
Forbes Magazine reported in 2006 there were 793 billionaires in the US with a combined net worth of $2.6 trillion. In March 2007 Forbes reported that the number had risen to 946 billionaires with a combined net worth of $3.5 trillion. That is a one-year increase of 19% in the number of billionaires and an increase of 35% in their net worth during a time of increasing poverty and stagnant wages for ordinary Americans.
Now you don’t need a PhD in economics to figure out that if the wealthiest individuals in society are being taxed at a rate of roughly 55% less than they were in the 1950s, there is a lot less money in the Treasury for social programs and job creation; hence a lower standard of living for average Americans– soon to be a much lower standard– one that will make the 1950s lifestyle of Ozzie and Harriet look more like the Duke and Duchess of Windsor–if our current financial crisis isn’t resolved.
But that’s only half the problem. Aside from middle-and-working-class Americans losing ground to the upper one percent on the personal side of the tax equation, they are also losing out on the corporate side. In the 1950s, large corporations were taxed at a rate of 50-52%. Today they are taxed at a 35% rate. And according to Robert Perrucci, author of The New Class Society, in the 1950s, large corporations paid 27% of the total tax load. Today, they only pay 10%.
In fact, many corporations pay no tax at all. According to the Government Accountability Office: “Seventy-two percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005.” So who makes up the difference? We do, we all do.
Of course, conservatives and libertarians always make two arguments whenever anyone points out that the super rich and multinational corporations are benefiting at the expense of everyone else.
The first argument: raising taxes on individuals, especially during an economic downturn, only makes conditions worse. True, if you raise everyone’s taxes, but if you are only taxing the upper one percent, the additional funds in the treasury can be used for all kinds of social programs and job creation– not to mention balancing the budget.
The second argument is that raising taxes on corporations won’t work because they will only pass on the taxes in the form of higher prices to consumers. Not true. Corporations fiercely compete with other corporations for market share, especially during an economic downturn, and most large corporations, like Microsoft or Exxon Mobil, can well afford to cut their profits without increasing prices. And if other corporations, not as profitable as Microsoft or Exxon Mobil, operate on such a slim margin of profit that they can’t afford higher taxes, then tough luck– it’s time for them to get out of business since many of them are shipping American jobs overseas and not paying taxes anyway.
If the latest economic meltdown has taught Americans anything, it’s that they were fools to ever put any credence in the idea of trickle-down, free market economics, much less trust their financial destiny to the so-called “smartest guys in the room” and “the masters of the universe.” In reality these bright boys of corporate America and Wall Street, mindlessly praised and idolized by the mainstream media, were just scam artists and white-collar criminals who leveraged their way into billions while
bankrupting the financial system in the process. And George W. Bush and Dick Cheney were their shills, their stooges, their front men who paved the way for them to bilk the system.
And now that our economy is in freefall, and Americans are losing their homes, their jobs, and their pensions, somebody has to pay the price. Unfortunately, there are only two groups left with any money: the super rich and the large corporations. So let’s hope President-elect Obama goes after them as soon as he gets into office, although as of this writing, it’s been reported that he’s “reconsidering” his pledge to increase their taxes. Perhaps this is a result of listening to the likes of Robert Rubin and Larry Summers, the same bright boys who got us into this financial mess by convincing Bill Clinton to deregulate the banking industry in 1999.
If true, this would be a big mistake. It would send a message to average Americans that Obama is already selling out to the moneyed class. What’s more, without placing higher taxes on upper bracket individuals and corporate America, the deficit will continue to balloon out of control. Some economists say this may be necessary for the short term, but add that it could be catastrophic for the long term. The question is, why add to the deficit when the government can get much of the money it needs by taxing the same super rich individuals and companies that made a killing in the last eight years under Bush?
If they had any sense of decency or honor, these individuals and companies would give up some of their loot voluntarily. But even Warren Buffet, considered to be one of the good guys, has no intention of doing that. For example, when he told the media that his secretary paid a higher percentage of income tax than he did, reporters praised him for his integrity and honesty. But I didn’t hear Buffet say to her: “And starting tomorrow, honey, I’m going to pay you the difference!”
So the probability that the super rich themselves, or the super rich financial advisors who comprise Obama’s inner circle, are going to voluntarily come up with a plan to tax a higher percentage of their income is nil; they’ll have to be forced to pay more, just as they were in the 1950s. And Obama will have to be the guy to force them; otherwise, he will be accused of selling out and becoming– in the words of Holden Caulfield– just another establishment phony.