It seems this is the year everyone wants to tax the rich, including about 70 percent of Americans. Various Democrats are offering an array of proposals from increasing the marginal income tax rate to 70 percent on income over $10 million to a “wealth tax” imposing levies on net worth above $50 million to significant increases in estate taxes.
But their argument that we had marginal rates of between 70 and 90 percent during mid-century along with a very strong economy holds no water in today’s complex global economy.
The 2008 financial crisis, distrust of big institutions and the country’s yawning inequality gap have fueled a populist surge in the idea that the wealthy aren’t “paying their fair share.” True, the top 1 percent pays about a third of its current income in federal taxes, but it also controls more wealth than the bottom 90 percent combined. It’s a concentration of wealth not seen since the Roaring Twenties, and we know where that landed us.
According to the CIA, the United States places 98th on the Gini scale, which measures income distribution within nations, just behind Mongolia, Bangladesh and Uzbekistan. Of the 136 countries rated, only 38 have greater economic inequity than the U.S.
But given all that, I’m not sure raising taxes on the wealthy is the way to go. It’s not that rich people make too much but that working- and middle-class people, whose wages taking inflation into account have drastically decreased or flatlined, don’t make enough.
Here in the 11-county Tampa Bay region, United Way reports 43 percent of households struggle to afford basic needs up from 35 percent in 2010, and 47 percent don’t have enough money put aside for a three-month emergency.
There’s a reason for that: Profits have been disconnected from the labor that once provided them. Now they result from robotics, AI, offshoring and outsourcing and increasingly on Wall Street churning money through exotic derivatives instead of making capital investments.
This is simply not sustainable. If you want to save capitalism, drastic measures are required.
But I believe there’s a better solution than taxing the wealthy – or as the Republicans dubiously refer to them as “job creators.” Rather, we need to get more money into the hands of workers by reconnecting wages and benefits paid to middle income and poorer workers to increasing productivity, as was the case prior to 1980. Since then, the top 1 percent has gained 242 percent from income and tax breaks to 46 percent for the middle class.
Remember before a dime of profit is made someone dug, hammered, loaded, programmed, served, jackhammered, harvested or typed. Before investors and executives get to walk away with obscene levels of profits and compensation because of the new economy devastating American workers, let’s pass legislation to make sure the people producing the profits for them are being paid what they deserve.
Pegging workers’ wage increases to their own employer’s dividends and compensation – the way it happened in mid-century – including off-shore profits will quickly close the statistical gap between rich and non-rich and with more disposable income workers will once again, as they did 60 years ago, spend the economy into long term, sustainable and vigorous growth of 4 to 5 percent a year, plus they will earn enough to pay a higher share of the taxes to help close the annual deficit. The wealthy would still take a hit to their bottom lines but would be less able to finagle this than they are their taxes.
This approach is more inclusive and palatable across economic classes and could garner much broader public support than the tax-the-rich schemes proposed.