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By Sam Pizzigati | July 24, 2011
IPS
Reposted with permission from Institute for Policy Studies

By feeding the rich and their corporations one massive tax break after another, lawmakers have thrown a monstrous monkey wrench into our national finances.

Once upon a time in America, back a century ago, our nation's rich paid virtually nothing in taxes to the federal government. And that same federal government did virtually nothing to better the lives of average Americans.

But those average Americans would do battle, over the next half century, to rein in the rich and the corporations that made them ever richer. And that struggle would prove remarkably successful. By the 1950s, America's rich and the corporations they ran were paying significant chunks of their annual incomes in taxes — and the federal projects and programs these taxes helped finance were actually improving average American lives.

America's wealthy, predictably, counterattacked — and, by the 1980s, they were scoring successes of their own.

Today, the rich and their corporations no longer bear anything close to their rightful share of the nation's tax burden. The federal government, given this revenue shortfall, is having a harder and harder time funding initiatives that help average working families. The result: a “debt crisis.”

This “debt crisis” in no way had to happen. No natural disaster, no tsunami, has suddenly pounded the United States out of fiscal balance. We have simply suffered a colossal political failure. Our powers that be, by feeding the rich and their corporations one massive tax break after another, have thrown a monstrous monkey wrench into our national finances.

Some numbers — from an Institute for Policy Studies report released this past spring — can help us better visualize just how monumental this political failure has been.

If corporations and households taking in $1 million or more in income each year were now paying taxes at the same annual rates as they did back in 1961, the IPS researchers found, the federal treasury would be collecting an additional $716 billion a year.

In other words, if the federal government started taxing the wealthy and their corporations at the same rates in effect a half-century ago, the federal debt to investors would almost totally vanish over the next decade.

Similarly stunning numbers have come, earlier this month, from MIT economist Peter Diamond and the University of California's Emmanuel Saez, the world's top authority on the incomes of the ultra-rich. These two scholars have shared some fascinating “what ifs” that dramatize how spectacularly the incomes of our wealthiest have soared over recent decades.

In 2007, Diamond and Saez point out, taxpayers in the nation's top 1 percent actually paid, on average, 22.4 percent of their incomes in federal taxes. If  that actual tax burden were to about double to 43.5 percent, the top 1 percenter share of our national after-tax income would still be twice as high as the top 1 percent’s after-tax income share in 1970.

So why aren't we taxing the rich? Why are we now suffering such fearsome “debt crisis” angst? Why are our politicos so intent on shoving the “fiscal discipline” of layoffs and cutbacks — austerity — down the throats of average Americans?

No mystery here. Our political system is failing to tax the rich because the rich have fortunes large enough to buy off the political system. Again, some numbers can help us better visualize that plutocratic big picture.

In 2008, the IRS revealed this past May, 400 Americans reported at least $110 million in income on their federal tax returns. These 400 averaged $270.5 million each, the second-highest U.S. top 400 average income on record.

In 1955, by contrast, America’s top 400 averaged — in 2008 dollars — a mere $13.3 million. In other words, the top 400 in 2008 reported incomes that, after taking inflation into account, amounted to more than 20 times the incomes of America’s top 400 a half-century ago.

But 1955’s top 400 didn’t just make far less than 2008’s top 400. The rich in 1955 paid far more of their income in taxes than today’s rich. In 2008, the new IRS data show, the top 400 paid only 18.1 percent of their total incomes in federal income tax. The top 400 in 1955 paid 51.2 percent of their total incomes in tax.

The bottom line: After taxes, and after adjusting for inflation, 2008’s top 400 had a staggering $38.5 billion more left in their pockets than 1955’s most awesomely affluent.

Multiply that near $40 billion by the annual tax savings the rest of America's richest 1 percent have enjoyed over recent years and you have an enormous war chest for waging class war, billions upon billions of dollars available for bankrolling think tanks and candidates and right-wing media.

In the face of these billions, should the rest of us, America's vast non-rich majority, just toss in the towel? Our counterparts a century ago certainly didn't. They challenged their rich, on every battlefront imaginable. They eventually prevailed. They sheared their rich down to democratic size.

We can do the same.

Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.

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Comment Preferences

  •  Big, big, big difference between the top 400 (2+ / 0-)
    Recommended by:
    1918, Roger Fox

    and the top 1%.  

    The top 400 are billionaires.  The top 1% starts at household (2 income) AGI $380,000 and there are about 1.4 million of those households. In other words, the top 1% starts at the level of 2 middle-aged, college or graduate school educated, working professionals who make $200,000 a year or so each.  

    The top 400 may have paid an EFFECTIVE federal income tax rate of somewhere north of 40%.  (As you know, statutory rates -- that 90% or 70% top marginal rates) are meaningless unless one also considers (1) at what income level they start) or (2) the deductions/exemptions/shelters available.  The top1% has never, ever, ever, paid anywhere NEAR that, according to CBO numbers.  According to the CBO, which began keeping track in 1979 (when the top marginal rate was 70%) the EFFECTIVE individual federal income tax rate on the top 1% in 1979 was 21.8%.  We've never, ever, ever had the top 1% -- which, until you get to those few households making millions a year, is largely working professional couples) at anything near 40% EFFECTIVE federal individual income tax rates.  (Remember Eisenhower's 90% rate had zillions of deductions/exemptions/shelters and even then only started at levels that would be about $2.5 million a year in today's dollars.)  

    So, if you raise the taxes to a very high effective rate on the top 400 households, you'll generate some revenue.  But you won't generate that $1 trillion unless you drastically raise taxes on the other 1,399,960 households in the top 1% -- working professional couples -- to a rate that has never, ever, ever been paid by working professional couples.    

    When you talk about how much should be paid by the top 400, and then shift to tax rates for the top 1%, you are talking apples and oranges.  

  •  Furthermore (0+ / 0-)

    When the top rate was 70%, effective top rates were low or mid thirties, Everything I've see about back in the day effective rates, during 90%+ rates, were 44-45%.

    Secondly as a percent of Fed revenue those top raters still pay about the same portion now as they did 30 yrs ago, the big change has come in the % of Fed revenues from corporations.

    Thirdly, as a percent of GDP, Top rates being hi, or low, has minimal effect on revenues.

    I dont want to raise taxes on the rich to pay down debt, in fact I think thats silly. We need to engage the working and middles classes in the economy, lowering the tax burden would help. Jobs would really help, but jobs take investment. I want to use taxes to incentivize this.

    Blame for wealth disparity cannot be placed solely on tax breaks for the rich, just as debt problems cannot be placed solely on tax breaks for the rich.

    I want to raise taxes on the uber rich, and give them a chance to get tax breaks to incentivize capital flowing to emerging tech and markets like solar, wind smartgrid with HVDC, etc.

    Those  exemptions and deductions are a great way to make capital flow where we want it to, instead of willy nilly everywhere like we see now. The right wing likes low taxes with fewer  exemptions and deductions to "level the playing field". But what that does is make currency and commodities speculation more profitable than say building factories that produce solar panels and create US jobs......

    The right wing "Market ideologists" dont like to pick winners and losers in a market, so the "level playing field" becomes this alter that some grovel before. And how much profit a corporation makes in the next fiscal year becomes more important than more long term thinking, like industrial and energy policy looking forward 20 or 30 years.

    Adding more brackets, for the current 6 to maybe 10 or 15 brackets will help with fairness. The Peoples Budget adds 5 brackets, with a top rate of 49%, I would go to at least 60% and add  exemptions and deductions targeting emerging tech and markets (like solar and wind). This increase in the to rate would tax income from currency, commodities and derivative speculation, and yet give big breaks to capital that built factories for solar and wind.

    Otherwise:

    Why should I build factories to build solar panels for a 5%, 6%, 7%, annual return...when I can engage in commodities speculation and make a 15% to 25% annually. This is what the "level playing field" yields. Capital tends to flow very well, it flows nearly everywhere, including places that maybe we don't need a high volume of capital to flow to.

    More

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Tue Jul 26, 2011 at 12:13:43 PM PDT

  •  Debt Ceiling Primer (0+ / 0-)

    Michael Hudson:

    You know that the debt kerfuffle is as staged as melodramatically as a World Wrestling Federation exhibition when Mr. Obama makes the blatantly empty threat that if Congress does not “tackle the tough challenges of entitlement and tax reform,” there won’t be money to pay Social Security checks next month. In his debt speech last night (July 25), he threatened that if “we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.”

    This is not remotely true. But it has become the scare theme for over a week now, ever since the President used almost the same words in his interview with CBS Evening News anchor Scott Pelley.

    Of course the government will have enough money to pay the monthly Social Security checks. The Social Security administration has its own savings – in Treasury bills. I realize that lawyers (such as Mr. Obama and indeed most American presidents) rarely understand economics. But this is a legal issue. Mr. Obama certainly must know that Social Security is solvent, with liquid securities to pay for many decades to come. Yet Mr. Obama has put Social Security at the very top of his hit list!

    The whole thing is worth a close look!

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