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It's the Consumers, Stupid! by Robert Merriam |
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November 28, 2011
Since Reagan’s tax-cutting
in the 1980’s until 2009, while the national wealth created by the
economy increased 128%, ninety percent of American workers have seen
their incomes stagnate, or even decline with inflation. The wealth
produced by the economic expansion has gone to the top 20% of earners,
an incredible 21.4% to just the top 1%.
Sure, global market pressures and the decline of American unions put downward pressures on labor wages, but the taxation policies of Reagan and subsequent administrations contributed decisively to the present inequality of wealth in this country. During four Democratic and three Republican administrations from 1945 to 1981, income taxes on the wealthy ranged from 92 – 70% and the national debt went down from 117.5% to 32.5% of GDP. Then, Reagan lowered income tax on the wealthy from 70 to 50 to 28%. During his eight years, the top 10% of earners increased their share of national income from 34.7 to 40.1% (and the national debt was increased from 32.5 to 53.1% of GDP).
Much of the profits from national productivity since the 80’s have gone to the executives of corporations and financial institutions. The Wall Street Journal reported that the pay and benefits at just the top 25 publicly traded banks and financial firms was a staggering $135 billion in 2010. These compensations were an increase of 23% over those of 2009 while the average American worker took home $750 a week in 2010, about the same as he/she took home in 2009 after inflation. Associated with these Republican tax reductions on top earners, the top 1% came to own 34.6% of the nation’s wealth by 2007.
Current Republican actions to eliminate government workers and block administration efforts to stimulate the economy without help from increased tax income are reducing the crucial component most needed to restart the economy and start effective national debt reduction: consumers with money.
What the wealthy have in abundance is discretionary money that can be invested. To hear current Republicans, most of this discretionary wealth is invested in business innovation and entrepreneurs. Baloney! Actually, a relatively small amount of discretionary money is invested in this way. When taxes on the wealthy were 70 – 92%, far above the 35% of today, the rate of new job formation was 40% greater than it was in 2009, the last date for the statistic.
In addition to investing in American securities where taxes are extracted from income every year, there are offshore financial centers (OFC’s) where ‘discretion’ about financial holdings may allow lower or even no tax. An evaluation of such centers was offered by David Rosenbloom, former international tax counsel at the U.S. Treasury. “The main argument against OFC’s,” he said, “is that by allowing companies and affluent individuals to avoid taxes, they sap tax revenues for ‘real’ countries, limiting those countries’ ability to pay for public services and forcing them to tax less mobile factors such as labor, housing, and consumption. The big risk is that “globalization” is perceived to be rigged against the average citizen.”
What is the size of the holdings of these OFC’s abroad? Senator Carl Levin reported a study estimating American tax loses to such tax havens at $70 billion a year. On a world scale, capital holdings of wealthy individuals and companies of the world in OFC’s are estimated to be $5 – 8 trillion, some 6 – 8% of global wealth under financial management!
The taxes that support government do at least two relevant things: they provide most of the security, oversight, infrastructure, international and consumer protection that American businesses need. Those taxes also provide public jobs, most of the cost of government, supplying an important component of the consumer base. Capital in wealthy hands, when used as consumption in American markets, also supports our economy and importantly, helps to support business innovation and entrepreneurship. If most of American discretionary capital, about 50% now held in the hands of the top 20% of earners, could be re-circulated by taxation into American jobs and consumption it would allow businesses to expand, invest in research and promotion, and give our economy the basic support it needs to support reduction of the national debt. Keeping half our capital in the hands of relatively few rich investors with great earning power but limited consumption makes little sense in today’s depressed economy.
It’s the consumers, stupid!
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