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A few years back, he was instructing his mother to be sure to vote a straight Republican ticket in an election year.Â
"I'm not going to do that!" she replied. "Only rich people vote straight Republican tickets."
"Mother, we ARE rich!" he reminded her.
Which brings me to the topic of today's post, which is simply the inequity of the taxes the very wealthy pay as opposed to the poor Middle Class. And make no mistake about it; the Middle Class is poor and getting poorer.
To wit:Â Warren Buffet recently admitted that his secretary pays more tax than he does.
One of the things that President Obama has said we need to do is to reform the tax code.Â
Currently, income earned in excess of $373,000 is taxed at a 35% rate. That's the top bracket.
To put that in simple terms, LeBron James and his dentist fall in the same tax bracket.
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A bill -- introduced by Rep. Jan Schakowsky of Illinois -- would set a new rate of 45% for Americans who earn more than $1 million. The progressive hike would top out at a 49% rate for income in excess of $1 billion -- which would mean those in that exclusive group would pay an additional 40% in federal taxes. Capitol gains and interest would be included.
Schakowsky estimates this alone would reduce the deficit by 68 billion in just one year!Â
This would also serve to redistribute the tax burden more fairly. The information that follows is a little outdated; but it demonstrates exactly what began happening when Reagan dropped the wealthy's income tax bracket down to 28%, although it was later raised to 35%.
This situation has just got worse and worse.
INCOME AND WEALTH INEQUALITY
According to the Federal Reserve, in 1990 the richest 1 percent of America owned 40 percent of its wealth -- the greatest level of inequality among all rich nations, and the worst in U.S. history since the Roaring Twenties. Furthermore, the richest 20 percent owned 80 percent of America -- meaning, of course, that the bottom four-fifths of all Americans owned only one fifth of its wealth.
Another revealing way of expressing this statistic is that the top 1 percent owned more than the bottom 90 percent combined.
What caused this growing inequality? The most underlying reason may be that it takes money to make money. This is why many call for a progressive tax system: to redistribute at least a percentage of the wealth back to the middle class, thereby avoiding modern serfdom. We will explore the tax cuts for the rich in detail in the next section.
But tax cuts are not the only way to polarize wealth. There are several others, and they can all be lobbied through Congress. A complete list follows in More.
Tax progressivity was highest in the decades after World War II, when the rich were taxed a stratospheric 88 percent for nearly two decades. This was also an era in which the U.S. economy was a juggernaut, and the American Dream was indisputably alive and well. Because of this, most economists do not believe that high tax rates on the rich are bad for the economy. No matter what rate the millionaires and billionaires are taxed at, they still have money to make more money.
Personal income tax rate for top bracket1
Years Percent
1945 91%
1946-63 88
1964-81 70
1981-86 50
1988 28
1991 31
The chart shows the effectiveness of a progressive tax system. When the top rates were truly high from 1950 to 1978, American income at all levels grew at about the same pace. But when progressivity was lost in the 80s, the income of the poor began falling, while that of the rich continued growing.Why? Because Reagan took away a ton of the Middle Class deductions and increased its tax rate to compensate for the break he was giving his wealthy cronies. That left the Middle Class barely surviving with little or no money left over to invest or save. Therefore, the wealthy began to become billionaires rather than millionaires with their sweet tax bracket while the Middle Class went into a decline that keeps getting more and more serious.
