The Problem
We have had 30 years of massive Wealth Redistribution, but it's not what you think. Changes in tax laws, the loss of labor unions, and money in Washington have caused a massive Redistribution of Wealth. In 1960, the top 1% of American's held just 10% of our entire Nation's wealth. Today, the top 1% of American's hold over 40% of our Nation's entire wealth. Even more, the top 5% of American's now hold 63.5% of our entire Nation's wealth. Since 1980, we have seen middle class wealth be redistributed up.
The wealthy have seen over a 256% increase in salary since 1980 while middle class salaries have stagnated. Not only have middle class household salaries stagnated, employer benefits have disappeared. Pensions have almost entirely disappeared and were replaced by 401k's. Employer contributions to 401k's have been shrinking and replaced by employee contributions. The middle class now pays for more or all of their own retirement.
Likewise, employer paid for healthcare benefits have been shrinking or disappearing. The middle class now has to pay for more and more of their healthcare premiums. At the same time, Health insurance companies have seen a decade of record profits.
Even more, in the last decade, the wealthy have paid the lowest taxes in more than a half of a century. In the 1950's, the highest marginal tax rate was 92%. If you made more than $300,000, you were taxed at 92% over that $300,000. During the 1960's-1970's the highest marginal tax rate was over 70%. Then under Reagan in the 1980's it went down to 50% and even lower, 45%, under George H.W. Bush. The Gingrich Republican-controlled House and Senate dropped the highest tax rate to 39.6% in the 1990's. Then, George W. Bush dropped the highest marginal tax rate to a meager 35% even though those massive tax cuts drove up the federal deficit.
Furthermore, George Bush dropped taxes on Capital Gains (stock market earnings), where the wealthy accumulate most of their money, to a mere 15% from 39.6% under Clinton. In the last decade, the wealthy have had the lowest tax rates in more than half of a century and we have had massive deficits. Moreover, because there has been no tax disincentive to pay out all of the corporate profits to the executives, and there is only so much profit pie, the middle class was the loser. Employers cut employee benefits while paying more and more of their profits out to a few at the top.
What Happened
So what went wrong? The middle class is the engine of the economy. It is the middle class spending that moves the economy. The middle class spends its earned money on goods and services. The corporations take that money as profits and then distribute the profits.
Since tax policy changed and the highest marginal rates dropped dramatically lower over the last 30 years, corporations have lost a disincentive to pay out all of the profits to a few small people at the top. When the highest marginal tax rate was 92% over $300,000 in the 1950's, there was a disincentive to pay out more than $300,000 to corporate executive. But now, with the highest marginal tax rate a mere 35%, there is no disincentive to pay executives extreme salaries. Executive salaries ballooned over 256% since 1980 and another 11% just last year. And there is only so much profit "pie" to share, so that left corporations with much less to pay their other employees.
At the same time unions began to disappear leaving employees without bargaining power over salaries. Today, less than 12% of our entire nation's jobs are unionized and a good portion of the remaining union jobs are in the public and not private sector.
So why didn't the middle class notice the income disparities? The Financial Sector created "innovations" in credit and said "let them eat credit." Although the middle class salaries were stagnating, the middle class felt richer because credit became easier. Down payments on homes shrunk every decade and so did the qualifying requirements. Although the middle class did not have the rise in income to make purchases, the financial sector decided to allow the middle class to go into debt to make purchases. People now could buy cars, t.v.'s, appliances, furniture, etc. on credit.
Corporations said why should we pay our employees more salary when instead we can loan them money to buy our products instead. Companies quickly learned that they could make money off their employees by loaning them money instead of paying them. Car companies starting loaning money to buy cars. Today, people hold multiple credit cards and most companies allow their products can be bought on a line of credit. Instead of salary increases the middle class was given credit, loans, and debt.
In 1980, the middle class actually had savings. Today, the middle class has stagnated salaries, reduced or no employer benefits, and massive amounts of debt. Meanwhile, the wealthy are wealthier than they have ever been in our Nation's history. The Forbes top 400 wealthiest people in the U.S. had a staggering 523% increase in wealth since 1982. During the recession from 2007-2009, Wall Street profits were up 720% and Wall Street recently had its second best year in history. The healthcare industry has likewise had a decade of record profits while we are suffering from a healthcare crisis of massive premiums and little coverage. The oil industry has also had a decade of record profits while we struggle to pay high gas prices. Corporate America is bringing in record profits and sitting on trillions in cash while the middle class struggles to get by.
So, yes we have "Wealth Redistribution," but it is the middle class wealth that has been redistributed to the wealthy.
Solution
A recent study by Yale looked at when the middle class fared best. The study determined whether the middle class fares best when taxes are lowest or at their highest. The study determined that the middle class actually fares best when taxes are at their highest. The study found that when taxes were highest the government could invest in the middle class and help with college grants etc. The middle class actually fares worst when taxes are lowest because it looses the investment from government.
It is a myth that taxing the wealthy aka "job creators" will keep them from creating jobs. The "job creators" have had a decade of the lowest taxes in more than half a century and studies show that there were little or no jobs created. Tax cuts just make the wealthy wealthier. There is no trickle down. The middle class is the engine of our society and, because of the 30 years of the middle class Wealth Redistribution and debt accumulation, it is run out of gas.
We need to reinstate a tax policy that discourages all of the corporate wealth to be paid out at the top. We need to raise taxes on the wealthy and use the money to invest in the middle class and America. We need a modern form of unions to bargain for better wages and benefits. We need to stop the wealthy and corporations from corrupting Washington. We need federally funded elections. We need reform of our media and to bring back the "Fairness Doctrine."