Since the 1980s, it has become increasingly clear that what America has done economically is perpetuate Socialism for the rich. Namely, we used our economic and tax policies to favor the rich at the expense of the middle class and the poor.
This has just about destroyed the middle-class and increased the population living in poverty. President Ronald Reagan and his ilk called it trickle down economics, but the problem is, nothing trickled down.
(Image: Reagan pitching his Tax Reduction Legislation in 1981 – PD, courtesy of the Reagan Library, official government record)
Just one example: Since the meltdown of 2007, 95% of the wealth generated in America has gone to the top 1%. And that’s after we, the other 99%, bailed them out. To salt the wound further, the 1%ers then turned around and gave themselves bonuses.
Now that’s Socialism for the rich.
What could the average citizen recommend to remedy this “Robin Hood in reverse” situation and rebuild the middle class by lifting more poor people into it?
Let’s begin by re-instituting a truly progressive tax structure.
After all, we had one in place during the 1950’s and 60’s. Social progress requires investment, and progressive taxation sees to that by ensuring that those who benefit the most pay the most in taxes.
Let’s take those marginal rates back to where they were under Presidents JFK or even Eisenhower — and do so for some very sound economic reasons. High tax rates on the mega-rich make them keep their money in the game, or better put, in their businesses.
(Image: Presidents Eisenhower and Kennedy – PD, Robert Knudsen. White House Photographs. John F. Kennedy Presidential Library and Museum, Boston)
Under Eisenhower — a Republican — in 1952 the super rich had a 92% tax rate. 92% sounds like an awful lot, but from 1944 through 1963 the rate was over 90%. (Source: http://en.wikipedia.org/wiki/Taxation_history_of_the_United_States).
The high tax rate on the rich, again, served a very good economic purpose that few economists talk about today.
They will quickly point out that after WWII America had to rebuild Europe and “Ike” had to and pay for the Interstate Highway System. These big, expensive tasks laid the foundation for the strong economic growth of the 1950s and 60s. That economic growth built the middle class.
But the biggest thing that high tax rate did to fuel America’s and the world’s economy was that it made the super rich re-invest in their businesses instead of stashing cash offshore, as is so much the rage today.
Remember, back then, if you took your profits out of the business you paid that 90% tax rate.
However, if you plowed that money back into your business, not only did you avoid the taxes, but your business expanded, more people were hired, more goods and services were purchased, and, as such, our market economy boomed and, again, the middle class was created.
That boom was all due to high tax rates on the rich.
Right now, the marginal tax rate on the rich is 39.6%. (Source: http://www.irs.gov/uac/Newsroom/In-2015,-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments)
And what are they doing with that historically low marginal tax rate? They are taking their profits out of their businesses, shipping them overseas or making the riskiest of investments — all done with the solid understanding that when things go bust, the average taxpayer will bail them out, after which these “rugged individualists” will give themselves bonuses and no one will go to jail.
Is there a better definition of Socialism for the rich? I’m afraid not.
Now, I am not against people becoming wealthy. I hope someday to have a little wealth myself. We don’t want to kill the incentive that some people have to be more powerful and better off.
But we had many rich people back in the pre-Reagan days, yet we also had a solid middle class because those rich people believed in the common good in America.
That common good, which benefits all, requires some sense of the greater good for the whole community, an idea that the privileged few appear to have forgotten.
To remind them of that grand idea and ensure the common good, let’s say we move the marginal tax rates on the uber rich up to at least 50%.
They will still be making a killing and living the good life, but after that first million or two, the effective tax rate should go up to 90%, whenever they take a profit, be it from income or capital gains. Rather than give that money to Uncle Sam, they will decide to reinvest in their business — but we need to make sure that reinvestment stays in the United States.
As history has shown, when they keep their money in America, paying workers well and creating real purchasing power, the whole economy thrives. At least that’s true if you really believe in market economies and not Socialism for the rich.
Shawn Casey O’Brien is the author of For The Love Of Long Shots…A Memoir on Democracy, available online at Barnes and Noble, Amazon, & IndieBound.