By GREGORY N. HEIRES
The money is not trickling down.
Evidence continues to grow about the persistence of deepening inequality in our society as beltway politicians consider raising the minimum wage.
And working families have little reason to be optimistic about their economic future as Washington fails to deal with the $1.2 trillion automatic spending cuts scheduled to begin in March 1. Economists believe the austere government policy will reduce economic growth by at 0.5 percent and cause the loss of 700,000 jobs.
A recent study shows that the economic recovery has only benefited the wealthy, suggesting that 99 percent of families are unlikely to see their living standards improve anytime soon unless there is tax fairness.
Average real income of families grew modestly from 2009 to 2011, according to University of California economist Emmanuel Saez. In January, Saez updated his study “Striking it Richer: The Evolution of Top Incomes in the United States,” to include 2011 estimates.
So, although the economy is officially recovering from the Great Recession of 2007-2009, the gains are not being distributed equally.
While the top 1 percent of families saw their income grow by 11.2 percent during 2009 to 2011, the bottom 99 percent actually experienced a decline of income of 0.4 percent.
“Looking further ahead, based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back,” Saez writes.
So, without changes in government policy on taxes and regulation, we can expect the wealthy to continue to benefit from economic growth while everyone else stays in place or falls behind.
“The policy changes that are taking place coming out of the Great recession (financial regulation and top tax rate increase in 2013) are not negligible but they are modest relative to the policy changes that took place coming out of the Great depression,” Saez writes. “Therefore, it seems unlikely that US income concentration will fall much in the coming years.”
With economic inequality at Great Depression levels and the United States set to implement European-like austerity policies, it’s time for a dramatic overhaul of our tax system.
To begin with, the government should look at raising capital gains taxes. Besides reducing inequality, a higher capital gains tax would provide the government with substantial additional revenue.
A new study shows how capital fueled inequality in recent years.
The study, cited by blogger Greg Sargent of The Washington Post, concludes that income from capital gains and dividends are the primary cause of the rise in inequality during a recent 15-year period. Thomas Hunderford of the non-partisan Congressional Research Service did the study, which covers 1991 to 2006.
“The reason income inequality has been increasing has been the rising income going to the top one percent,” told Sargent in an interview. “Most of that has come in capital gains and dividends.”
A New York Times editorial on Feb. 21 points out that the new top income tax rate of 39.6 is “historically low.” The editorial also noted that nearly $1.1 trillion in annual deductions, credits and other tax breaks disproportionately benefit the affluent—and cost more each year than Medicare and Medicaid combined.
A financial transactions tax would ensure a steady flow of revenue to the federal government, putting an end to the deficit hysteria that led to the sequestration, which calls for slashing $1.2 trillion over 10 years. A 1 percent tax on stock and bond trades and a 0.1 percent on derivative trades would bring in $750 billion in revenue each year, according to Ellen Brown, an attorney and author of 11 books, including “Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free.”
As conservatives continue to screech about the deficit and demand deep cutbacks in government spending, it’s time we examine more closely the public policies that brought us here.
We face a manufactured crisis that could be remedied rather painlessly if only the politicians who claim to be the defenders of working families had the will to do it.
