Quote from AAAintheBeltway:
I believe his point was that the actual tax rate on middle income salaries is the lowest it's ever been. That is not dependent on the economy. It's well known that nearly half the country does not pay any income taxes. I see that as a problem, particulalry because that same group tends to be a heavy consumer of government benefits.
I share your cponcerns about the US turning into a banana republic. We're seeing signs of it already. We have had a massive influx of immigrants, lelga and illegal, from actual banana republics. They bring the same attitude and culture with them that produced the disasteers they are fleeing. In the past, immigrants were required to assimilate. No more. We now have to accommodate them. Now we're being threatened that we have to make them all citizens or else.
We have a president who ran on a typical banana republic platform of hate the well-off, vote for me and I'll take what's theirs and give it to you.
As to income disparity, I agree it's very unhealthy. There are many causes, eg out of control CEO compensation, offshoring of middle class jobs in manufacturing, less demand for unskilled workers and of course immigration. The failure of the black underclass to value education and adopt responsible lifestyles has to be mentioned as well.
I think where we differ is I don't think the tax code is the way to address these issues. We should be encouraging people to save and invest, not enacting disincentives.
Beltway, I have some ideas to throw at you for your comment. No particular order here. We all know that a big chunk of the adult working population does not pay any net income tax. If they paid any in, they get it all back. They do pay payroll , sales and excise taxes, and I've read, but don't know if it is true, that some of these folks may actually pay a higher fraction of their gross income in taxes than someone with huge unearned income. That's just something to think about.
But why is it they don't make enough to pay income taxes, and what policies might make it more likely that they could, on their own initiative, move into tax paying status, while improving their living standard?
I agree with you that the income tax rates, not just on the middle class but on all, are about as low as we have seen since the very early days of instituting the income tax. That, I think, is at the root of some of the problems you noted, including the fact such a large portion of the population makes so little money that they don't even qualify to pay income tax.
I doubt we will agree on this, but it's no fun at all to preach to the choir, and that would bore you too. I am convinced --naturally I reserve the right to change my mind--that a major part of the underlying cause for the decimation of the middle classes over the last thirty years -- aside from off shoring, which is indirectly related -- was the unwise income redistribution resulting from what I understand now, in retrospect, to be the faulty economic policies put in place by Reagan in U.S. and Thatcher in England --no wonder they were such good chums! Neither of course originated their economic ideas. Those were popularized and promoted by the "Chicago School" and some neo-liberal economists abroad. They sounded wonderful at the time, but sadly have had a disastrous long term result.
It simply wasn't true that doing away with the progressive tax structure and slashing rates in the upper brackets would increase government revenues. Making rich people richer did not, and does not, make everyone richer! That idea, we learned, is false. Markets were not, and are not, efficient, and they do not move spontaneously and harmlessly toward equilibrium, as Reagan's man, Alan Greenspan, said they would. The hoped-for trickle down effect, that was to lift all boats, lifted only the yachts; row boats and dinghies were left high and dry.
The same people who promoted supply-side economics, for the most part, harbored a deep distrust of government. This led to their wanting to privatize virtually everything that could conceivably be. Eventually this zeal for privatization resulted in present day absurdities, such as corporate run prisons! -- the cost per bed came down, but the overall cost to the taxpayer skyrocketed as each additional prisoner added to corporate profits. We locked up everyone we possibly could and kept them locked up as long as possible. Profits soared right along with crime rates and the prison population!
In Thatchers England it was decided to allow SERPS (a part of their National Insurance equivalent to U.S. Social Security) contributions to be diverted to private pension plans. There were unpleasant, unintended consequences.
http://www.independent.co.uk/news/b...f-inappropriate-savings-products-1432068.html
In spite of this unhappy British experience, later Republican administrations, oblivious to both stock market crashes and the actuarial necessity of wide participation in Social Security, fought hard to privatize all or part of U.S. Social Security. They were beaten back, as the memory of market crashes was conjured up by opponents.
In the U.S. Republican administrations subsequent to Reagan's continued to follow faulty economic theory long after the defects were evident. Thus the Bush II administration, once again, slashed income tax rates, just as Reagan had done, in the face of hugely accelerated government spending. The unintended results were equally bad, as in Reagan's time. The anticipated windfall of new revenue never materialized.
As part of the "new economic thinking," and its companion mad dash to privatize, there was a push to deregulate -- set the private sector free, as it were, from government interference. Let it loose its magic powers of money multiplication upon us all. When Travelers Insurance went places they were not permitted to go they found a friend in Phil Gramm, husband of one of Reagan's chief economic advisors. Gramm solved Travelers problem, but just in the nick of time. He got rid of Glass-Steagall. His wife Wendy was happy to lend a hand by helping to emasculate the CFTC, while passing through on her way to the ENRON Board of Directors. Then came emasculation of the SEC. "Mission Accomplished!" The "incompetent" government was no longer permitted to interfere with making Americans rich. We ordinary folks knew not then how it all would end, but the clairvoyant Mr. Tom Daschle, when he heard Gramm's proposal, predicted the sad ending with uncanny precision. But we didn't listen, and had we, we wouldn't have heard; we were in a rush to get rid of lazy and bad government. We wanted the competence and clear thinking of America's business minds to be in charge. "Get the government slackers out of my way!" "Get rid of government interference," we said, and the economy will do even better. So we did!
Now with the benefit of hindsight, some of us have learned that things are seldom as simple as they might first appear. Neither government nor the private sector has been found to be perfect. Could it be that both have a role to play, and our job is to figure out what that is, or should be?
The supply side economic theories of the past thirty years led ultimately to the near destruction of our progressive income tax system and resulted in a redistribution of wealth, unjustified by merit, from the lower middle class to the uppermost middle class and to the already wealthy. The low end of the former middle class moved into poverty, and many formerly in the top half moved into the bottom half. In the mid 1960's unskilled labor made $10.50/hr (min. wage in constant dollars), today $7.25/hr.
It is time to recognize that government is not entirely bad, and the private sector is not entirely good. We need to bring back progressive income tax and reverse the bad results we got from following faulty economic theory; we need to reverse the wealth redistribution that occurred in the last thirty years by going back to what has worked and jettisoning what has not worked.
If we do this, then thirty years from now the middle class will be larger and many of the other problems you mentioned, while not disappearing, will be far less noticeable.
Reversing the wealth redistribution of the last thirty years should be our top priority, if we want to avoid permanent banana republic status. But we must do at least two other things as well. We must also bring both our medical costs and our defense costs down to the average of the other 13 industrialized nations we compare ourselves to.
All of these things are doable. The first step is to give up on false economic theories, and recognize what actually works as intended..
