Thursday, June 5, 2014

History of Top Tax Bracket by Shannon Hill

Shannon Hill
The biggest lie the American people were ever sold and the absolute best thing we can do to fix our inequality problem and fix our broken economic system and our country! 

What you won't often find written about is how the slashing of the top tax rate to nearly a third of what it once was, not only spurred the growth of wealth of the rich and the growing inequality, but how it also helps to keep our wages low and ruin the economy for all of us except the very rich. 

History of Top Tax Bracket- in 2013 dollars (the top bracket only applies to earnings that exceed the maximum for that bracket) 

1920- 73% on $11.5 million
68% on $2.3 million
--paid for WW1
--Unemployment dropped to near 4%
--US debt dropped to just 5% of GDP

1925-1931 25% on $1.3 million
--led to some of the worst inequality in income and wealth in the country's history
--led to the great depression
--Unemployment skyrocketed to its highest level ever, over 20%

1944- 94% on $2.5 million
--paid for WW2
--launched the greatest period of prosperity in our history on the heels of the worst economic depression ever
--led to unemployment hitting its lowest level ever, near 2%

1946-1951 91% on +/- $2 million
--wiped out the worst debt to GDP ration the country has ever had, 112.7% 1945

1952-1963 91-92% on +/- $1.5 million
--known as the decade of prosperity
--The economy overall grew by 37% during the 1950s.
--At the end of the decade, the median American family had 30% more purchasing power than at the beginning.
--Inflation, which had wreaked havoc on the economy immediately after World War II, was minimal.
--Unemployment remained low, bottoming at less than 4.5%
--wages were tied to production, both capital and labor shared in the gains equally

1965-1981 70% on $729k down to $272K in '81
--marked the beginning of when wages were no longer tied to production
-- inflation skyrocketed to nearly 15% annually by 1980

1982-1986 50% on $100k to $180k
--disconnected wages from production even more
--marked the beginning of rising inequality
--led to the biggest increase in government debt since WW2
--Unemployment hit near 10%, the worst since the great depression
--marked the beginning of massive consumer debt

1988 28% on $29K 

--led to government debt's highest level since WW2
--consumer debt as a ratio of disposable income went from about 65% to over 80%

1992-2000 39.6% on +/- $193K
--Unemployment fell to 4.4%
--led to a decreasing government deficit including 2 years of government surplus
--US government debt dropped from around 50% of GDP to about 30% of GDP
--inflation dropped to its lowest level in nearly 30 years
--median household income increased by about $7,000
--consumer debt fell for the first time since the early 1970's

2003-2012 35% on $190K to $200k
--led to the Great Recession
--at the peak more than 8 million lost their jobs as unemployment went back up to over 10%
--median income dropped by about 11% or about $5,000
--consumer debt saw its largest increase since the Great Depression a jump of more than $20K per household
--student debt increased about 450%
--health care costs doubled
--US government debt doubled going to over 90% of GDP by 2012
--in 2012 the richest 10% of the country took home more than 50% of all income, the highest level ever; the richest 1% took in 22.5% of all income the highest level since just before the Great Depression.
--from 1970 until 2011 middle income earners share of all income fell from 62% to 45%

--we now have the largest gap between income and production ever

The lie we were sold on, supply side economics or trickle down, was that cutting these tax rates would lead the wealthy to the reinvesting more of their earnings and thus create jobs and create a robust economy for all. However, what happened instead, after about 35 years of this nonsense, is that the wealthy got wealthier, hoarded their money, sent jobs overseas to make even more money and wages for everyone else stagnated. The wealthy simply earned more than they could invest but worse than that is the other consequences these tax rate cuts have caused. 

First, it has given incentives to company owners to cut costs in every way to maximize profits. After all, if you are going to pay 90% taxes on anything over $2.5 million then you have little incentive to try to make $20 million. But given a low top rate you have every incentive to cut costs. That means slash worker's pay, do everything you can to pay less and less health care for employees, rid yourself of pension plans, and cut holiday and vacation pay. Every dollar you save is more money in your pocket. 

Second is that it leads to employers seeking less educated employees that they can pay less and often for more hours worked. This is why we see many fast food and retail managers working 50 or 60 hours a week for a salary. It doesn't take a rocket scientist to do the job and these people are eager for the opportunity in a horrible job market. This also leads to less importance placed on education in general. Why should someone go in debt for a college education when they are not going to be able to find work paying enough to make it worth it?

Next, it leads to monopoly takeover in all sectors. If you own Wal-mart you have the incentive to grow and grow, the bigger you get the more billions you make. Same with big Ag companies and the too big to fail banks. This doesn't lead to more jobs, it causes Mom&Pop locally run businesses to fail, local banks to be bought up, and small farmers to be put out of business. In turn, it kills many local economies because money is no longer recirculated locally but instead shipped off to someone's huge bank account in Arkansas.
For some of the same reasons it encourages higher prices. If you only have a couple of big Ag companies processing chicken, then there isn't the competition needed to help keep prices down. Price fixing becomes an issue. But besides this, because you can keep virtually unlimited profit, it gives more incentive to raise that candy bar another nickel. If you are limited to how much profit you can keep it isn't nearly as tempting to go ahead and raise that price. And BTW how much do you think it would cost to get an NFL game ticket if we were not having to pay that quarterback $100 million a year or the team owner billions? What if the average CEO of a S&P 500 company didn't get paid $10.5 million a year? How much less would health care cost be if the billions of profits were taken out of it and insurance? Plane ticket? NASA satellite? A B-1 Bomber? Prison costs? Ford Mustang?

The lower top tax rate causes more tax evasion. This seems crazy but when you can only keep $2.5 million it is awfully hard to explain where that $100 million came from, but when you are able to get that $100 million you take every advantage legal or not to make it $150 million. It is estimated that we now have about $500 billion to $1 trillion in tax evasion every year. With more money going to the average worker we would generate more tax revenue and have far less evasion. This would lead to balanced government budgets and get our country out of debt. 

Finally, it leads to corruption in politics. When billions are at stake it is nothing to spend $100 million to get the election to go your way. It is also nothing to spend millions lobbying for what is going to help you put that extra billion in your pocket. No matter, if fracking is going to ruin the water supply in Pennsylvania, it isn't going to effect that billionaires water in New York City. Likewise, it is nothing to spend millions on false propaganda to convince the average voter why they need to see it your way. 

If you understand that employers would rather give tax savings to employees in higher wages than pay high taxes to the government, given the same after-tax net profit then you understand why raising the top tax rate is the answer to many of our economic problems. Putting money in the hands of our people will cause economic growth like nothing else. It will allow them to get rid of all of the debt and credit that is such an anchor that drags us all down. People will be able to save for their children's educations and for their retirements. Social Security will be funded and no longer have to be the only source of retirement income for the majority. Inequality will begin to disappear, less and less welfare will be needed, crime, poverty, teen pregnancy, and abortion will all drop. 

As a nation we will be able to invest in infrastructure; fix our dams, roads, and bridges. We will be able to invest in bullet trains, airports and upgrading our outdated electric grid. The naysayers will claim that we will stifle investment and kill jobs. They will say we will force the wealthy to take their money and go to invest in more tax friendly countries. I say let them go, the demand will still be here and we will have good people willing to play by the new rules to step up and fill the void. They will appreciate their $2.5 million a year and be fulfilled providing good wages and benefits to their employees. Opening up the opportunity for more people to invest will create healthy competition both for employees and for goods and services. Thus we will keep wages respectable and prices lower and create a better life for everyone. We will have created new rich people but not so rich that they spoil all of the fun for everyone else. All of this and more is why raising the top tax rate back to near 90% levels is the absolute best thing we could do to repair our broken system and rid this country of the nightmare of inequality and debt that we have created.

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