Last week, BBC News announced that the top one percent of U.S. earners collected 19.3 percent of household income, breaking a record previously set in 1927.
Since the late 1970s, income inequality has surged. Compared to the current rate, the richest one percent of Americans in 1970 enjoyed nine percent of total national pre-tax income. We are living in a New Gilded Age, which has only accelerated since the financial crisis a few years ago.
Let that sink in for a minute. Now brace yourself.
Since 2009, the pre-tax incomes of the top one percent of households rose 19.6 percent compared to a one percent increase for the rest of Americans. Likewise, the richest 10 percent of households own about 90 percent of stocks in this country, ensuring that the divide will continue to widen.
Income inequality is not only a gross evasion of the supposed American ideal of being a place of opportunity – it’s bad news for everyone.
As President Obama said at Knox College (Ill.) this summer, “This growing inequality – it’s not just morally wrong. It’s bad economics. Because when middle-class families have less to spend, guess what? Businesses have fewer consumers.
When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy. When the rungs on the ladder of opportunity grow farther and farther apart, it undermines the very essence of America, that idea that if you work hard, you can make it here.”
For many, it seems as if the American dream is a remnant of the past or an elusive myth. In fact, the United States ranks among the bottom of developed countries in economic mobility.
If there is even the slightest chance of reversing this trend, the ways in which Americans think about wealth must fundamentally change. We must stop talking about classes in simplistic and false terms of “job creators” and “welfare queens.”
If we truly believe that income inequality is wrong, we must also recognize that tax cuts do not always lead to economic growth. In fact, they are quite susceptible to raising deficits which force the most vulnerable of Americans to bear the brunt.
Cuts in education and welfare and reductions in Social Security, Medicare and Medicaid take money out of the pockets of people who depend on them and stifle social mobility.
If we want to live up to our supposed values, these latter three programs should not have the label of “entitlement programs” but be seen for what they are – a very basic social safety net. Americans should likewise focus on the Affordable Care Act’s reduction of the national debt by $200 billion in its first 10 years and $1 trillion after its second decade, instead of labeling it as socialism.
If there is to be any reaction to the rampant divide between the two Americas, there ought to also be a continued effort to raise taxes and eliminate loopholes on the wealthiest Americans – an idea which has widespread support.
If we want to be a country of equal opportunity, we must solve the dire problem of a tax code that allows Warren Buffett to pay a lower tax rate than his secretary. Correcting this inequality is not socialism, as many seem hell-bent on labeling the Obama administration, it is fairness and sound economics. And compared to the top marginal rates of around 70 percent from the 1940s to the 1980s – a time of great economic prosperity – today’s top marginal rate of around 40 percent does not seem so bad.
If there is to be a reversal of this disturbing trend, immigration reform must be one of our highest priorities, and undocumented immigrants should be recognized as citizens rather than amnesty-seekers or a drain of society’s resources.
The Congressional Budget Office has estimated that such reform would reduce deficits by $158 billion in 10 years and $685 in the following decade. In fact, if undocumented workers make at least minimum wage, the wages of everyone will rise, as employers would no longer have the leverage they enjoy now to pay citizens lower wages.
If we want to do anything about the single-most important issue of our time, we must first be willing to have the difficult discussions.
This requires acknowledging that the problem exists and that with the proper policies, its severity can be reduced. We must also admit, however uncomfortable or disappointing it may be, that as Americans, we are nowhere near living up to one of our sacred national values.
Though popular opinion and the facts are on the side of what is right, it does not seem that these problems will be solved anytime soon.
Online Editor Ross Fogg is a College senior from Fayetteville, Ga.
Photo courtesy of EN 2008, Flickr
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You and your pseudo-communist friends on the fringes of the left are as always, so wrong about what the American ideals of “opportunity” are and how they apply. I even read another article about how basically big government was wanted by the founders to ensure equal opportunity. Revisionist history at its best, please actually read the Federalist papers, speeches, Constitution, etc. Socialist keynesian economics are not American, not by a long shot. You cannot ensure equal opportunity through statist methods. What you people want to enforce is EQUALITY OF RESULT.
This is undoubtedly a socialist measure and any attempts to shove that fact under the rug should be treated as such, with skepticism and scrutiny.
Equality of Opportunity is the idea of social mobility, that you can lift yourself up out of poverty and that the best way of doing so yet discovered is through capitalism: making your fortune off of providing a service or product others want to buy, or by working your way up through business or commerce through merit. That capitalism is more efficient an economic model (even though it has its flaws, like failing to prevent crony corporatism if the bureaucracy becomes too large, like what is happening right now, on its own..) than socialism is not even debated. History stands on the side of capitalism. The argument was over in the 90s. The efficiency argument is over, capitalism won and socialism lost. On the other hand, there is now a moral argument that capitalism is immoral and socialism is somehow better. This is not even a valid argument, why? Because we no longer HAVE laissez faire capitalism. In fact, it is debatable whether we ever really have had it, as contrary to popular belief we are not the espousers of capitalism. Austria and Switzerland are, and they’re sitting pretty last time I checked. I’ll touch up later on why we no longer live in a capitalist system (increasingly so) and why then blaming our current problems on capitalism is utterly ridiculous and myopic. For now, let’s talk morality, and Equality of Result vs. Equality of Opportunity.
Equality of Result is the idea that you are owed a living equal to (or at least, approaching equal to, depending on how severe the socialist methods are) every other citizen of the country regardless of how much work you do, how much education you receive, or what job you have worked for. It essentially completely removes any and all desire to work any more than the bare minimum in order to qualify for other people to pay all of your bills, because if you work hard to produce a lot of product/labor and the benefits of that work are taken from you (at gunpoint) to be given to others who did not work for that money, it’s essentially a system of the government robbing everyone, spending first to upgrade itself and expand its bureaucracy, and then helping out the poor with the stolen money, regardless of whether they are worthy poor (trying to make ends meet and can’t, have physical or mental disability that prevents them from achieving) or lazy poor, who simply do not want to work because they have no drive to succeed. This system over time produces a behemoth bureaucracy that inevitably collapses due to lack of an ability to financially sustain it. The more hands-on you get, the more people you have to pay to administer a finite amount of wealth being produced by commerce, a number that also tends to decline every year as people realize it is more profitable to quit work and file for government assistance than it is to work for what you have. This is an extremely unsustainable economic model, and while being arguably noble in its goal, is extremely immoral in practice and has a tendency of creating military dictatorships. We don’t want that here, sorry.
Income inequality is not wrong in general, however, it is wrong in particular when the people who are at a lower end of the income were cheated by being at a natural disadvantage. I believe in some safety net for these people. I do not believe that enough people are in this category, statistically, to warrant massive economic redistribution and the de-motivation of working that accompanies it. Oddly enough, the very source of this massive concentration of wealth is the fusion of the TBTF (too big to fail) corporation with a large government bureaucracy. This typically happens with staples, like General Electric (who was given massive tax cuts coincidentally after providing campaign funds to President Barack Obama). This is part of a system that masquerades as laissez-faire capitalism when it is in fact, crony-corporatism. In a laissez-faire system, costs of living are driven down, competition is free which drives up wages and drives down prices of products, and starting your own business is easy and simple, which is the most effective and efficient way of getting people out of poverty. Government subistence will never lift the poor out of poverty by taking the money everyone else earns while fattening itself with the massive spending required to administer such a protective bureaucratic system. This is why the USSR inevitably collapsed: it was a financial collapse. This is how Greece got into its mess. This is why Detroit is in shambles. It practiced unsustainable economic protectionism, huge taxes (which drove away citizens), fed a largely corrupt massive city government that always wanted more, and local politicians took office by practicing beefy benefits to government workers while at the same time working to massively expand city government programs to get more prospective voters on the government’s payroll so that they could effectively buy elections by adding to an already growing city deficit, because they would conveniently be out of office before the city would ever have to pay those chunky benefits.
Fun fact: government tax dollars only go 30% towards helping the poor. Private charity donations are 70% towards helping the poor directly, and the United States donates more money per capita to charity than any other country in the world.
So let’s respond to some of your particular points in detail: About Warren Buffet paying less in taxes than his secretary. This is because Buffet is an investor in the very companies that provide jobs for the country. Capital gains taxes are relatively low because if they were not, people would stop investing. Investing is incredibly risky, this is why investing is not quite as cheaply profitable as the author suggests. You are putting money you gained most likely through working (normal people use the stock market more than you would think, the average investor is not always some big shot) and risking that money in a company that has the potential to do great good for the economy by providing a service people will buy. If you deincentivize stock market investing, naturally investments will decrease and this will have two major effects: it will make new startup businesses harder to sustain without investors who believe in the company, which will have a stagnifying effect on the company if new innovative businesses are not being created. This also will contribute to well-seated crony corporations gaining even more power by effectively cornering the market if new competitors cannot come into the market because nobody is willing to invest on anything that is even slightly risky because the new higher taxes make it no longer cost-effective. The second effect is that it will hurt consumer confidence. When a business does poorly on the market, people lose confidence in the quality of the products and may buy less, which will result in lower tax revenues for the state, and if the businesses suffer, they may have to lay off workers. Tax raises almost always correlate with job loss. Additionally, significantly increasing minimum wages has a similar effect. It raises the cost of all products made with that more expensive labor. But.. that’s fine, right? They have more money now, they can afford to pay the price increase. Not exactly! This system frequently coincides with higher taxes (a part of the economic model that starts to approach socialism, even if it is not quite there yet..), which again correlate with job losses. At any rate, those with no immediate income will have an extremely hard time paying for basic every day commodities when the prices start to skyrocket and the crumbs in assistance they receive from the government (30%, again, vs. 70% of charity money, and charity donations decrease as taxes increase) are stretched thin just to get by. It doesn’t solve the problem of poverty at all, it makes the situation of poverty a permanent, perpetual cycle. Investing, creating, producing, serving your fellow man is what lifts the poor man out of the financial slavery that is poverty and dependence. Welfare in some form is necessary for the cases I described. Social Security is a folding program that is projected to fail within a few generations, not exactly a model for government programs. Medicare and Medicaid, while being beneficial to many people, are the highest cost in government spending and we are in a massive debt crisis that is inevitably going to drag EVERYONE down, and we are currently doing this by having to inflate the value of our dollar as a de-facto tax, on top of the other new taxes that are being pushed by the Obama Administration in the place of cutting the fat out of government spending (don’t be fooled, government spending is still massively increasing). We’ve effectively gotten ourselves into a Catch-22 as a government by trying to do too much through use of inefficient federal bureaucracy in order to chase a dream of a society without poverty.. we’ve only made the problem much worse. And your solution to the problems caused by this Catch-22 is to try to pile even more liabilities onto the government to try and solve a problem that it is not capable of handling, meanwhile feeding what is effectively now a blubbering obese moron of a government with the staples of everyone else’s work? http://danieljmitchell.files.wordpress.com/2012/05/bloated-government-cartoon.jpg Please stop acting like this is such a one-sided issue.
I’m not defying the growing problem. I’m just pointing to the cause of it, while you seem content to blame it on the typical ignorant answer of “uhhhh… REPUBLICANS!” (as your oddly propagandist image suggests) and I’m also arguing that the answer to our problems is not more of the same of what actually caused this disturbing trend in the first place. As far as immigration, I agree with you that this is a step in the right direction, although I also can’t help but think this was a move by the Democratic Party to get millions of new voters. Regardless, we must do what is best for the country regardless of political expediency. However, having a completely open border without border security is retarded. No country on that planet has ever done this.