This diary is in response to Laura Clawson's review of “The Betrayal of the American Dream” by Bartlett and Steele. I confess I have not read the book and am relying on her synopsis but I trust she has described the book well and her judgment that the book does not provide solutions to the problem of wealth disparity is accurate.
What struck me in the review and many of the comments is the non discussion of the elephant tap dancing across the room. The chart at the top of the review clearly shows that the divergence of income took off in the 1980's. Perhaps I am older than most of those here but I turned 30 in the 1980's and remember them. When Ronald Reagan took office the top marginal tax rate was 70% and capital gains and dividends were taxed at the same rate as earned income. Since then, the marginal rate has varied between 28% and 39.6% and capital gains are taxed at a far lower rate. Thus, we see the middle class struggling while the wealthy acquire more. This is not just post hoc reasoning. The Congressional Research Service report concludes that marginal tax rates have little to do with economic growth but do contribute to income inequality.
Therefore, a return to the marginal tax rate of 70% and eliminating the difference between capital gains and earned income would lead to a more equitable distribution of wealth. There would be more incentive among business to invest in research and workers as the CEO's would be less inclined to siphon off profits in excess salaries. In addition, the financial speculations responsible for the current recession would be less likely simply because they would be less profitable. While I would also like to see a financial transaction tax and a restriction on commodity futures trading to those entities that either produce or consume the commodities in question, I believe that greed is the root cause of much of our current problems. We should then, at least make greed less profitable.
The Occupy movement has been successful in highlighting the problem of income inequality but has been criticized for not advocating policy positions that can be enacted through legislation. I propose an increase in the marginal tax rate to 70% on incomes over $1,000,000 per year, with all income taxed equally. I have no illusion that such a change will be politically easy, witness the recent resistance to even a small increase in the marginal rate. I am certain, however, that such a change can only come about with massive grassroots support. It is necessary to begin a national conversation on the advantages of returning to tax policy that favors the middle class. After all, the marginal tax rate during the Eisenhower years was 91% and the American economy did very well in the 1950's and 1960's.
