The “Fiscal Cliff” Scam to Maintain Low Tax Rates on the Rich [View all]
There are two highly related major purposes behind all the “fiscal cliff” nonsense we’re hearing these days from our “mainstream” corporate owned news media: They want to scare us so bad that we agree to permanent cuts in the social safety net programs that built up and sustained a healthy middle class in our country for so many decades; and, most important, they want to maintain or even reduce the current historically very low tax rates that the wealthy currently pay.
How, one might ask, do they intend use the scare of rising national debt to induce us to maintain their current low tax rates or even reduce them further? That’s easy. They simply claim, against all historical precedence and common sense, that raising taxes on the wealthy will hurt our precarious economy and cause more job loss. They have a million different ways of saying and rationalizing this nonsense. For example, a typical statement on this subject comes from Forbes.com, which says that if we raise taxes on the wealthy we will “lose the value that billionaire's contributions would have made to the economic life of the community”.
To examine the validity of such statements, all one needs to do is examine a graph that simultaneously plots income inequality and top marginal tax rates over time. The two superimposed charts below show respectively: 1) the relationship of income inequality to the two worst economic catastrophes of our history – the Great Depression of the 1930s and our current recession; and 2) how top marginal tax rates for the wealthy have varied over time.
The first chart plots income inequality, measured as the ratio between the average income of the top 0.01% of U.S. families, compared to the bottom 90%. The most important thing to note about this chart is that just preceding the great stock market crash of 1929, which plunged us into the Great Depression, and again preceding the great recession of 2008 (in which we are still mired), the inequality ratio hit peak levels. The second chart shows that income inequality plotted over time is inversely proportional to top marginal tax rates.
Just prior to the Stock Market Crash of 1929 that led to the Great Depression, top marginal tax rates were very low, at 25%. President Roosevelt responded with the New Deal, a vast conglomeration of social safety net and job creating programs, controls on powerful and wealthy corporations to prevent them from trampling over ordinary people in their quests for profits, and rising tax rates on the wealthy, which reached over 90% by the late 1940s, and remained at high historical levels until the Reagan presidency beginning of the 1980s.
Nobel Prize-winning economist Paul Krugman describes the economic boom that coincided with the very high taxes on the wealthy, in terms of median family income: Beginning in 1947, when accurate statistics on this issue first became available, with the top marginal tax rate approaching 90%, median family income rose steadily (in 2005 dollars) from $22,499 in 1947 to more than double that, $47,173 by 1980. Then, for the next 25 years, except for some moderate growth during the Clinton years, there was almost no growth in median income at all, which rose only to $56,194 by 2005 (85% of that growth accounted for during the Clinton years). Krugman refers to this period as "the greatest sustained economic boom in U.S. history".
All this should be enough by itself to shut up all the yapping about the benefits of reducing and the dangers of raising tax rates on the wealthy. But if not, consider where the George W. Bush tax cuts for the wealthy have gotten us. In the face of the economic disaster that followed several years of massive tax cuts for the rich, how gullible do you have to be to continue to believe that tax cuts for the rich are good for our economy?
What the right wing “Fiscal Cliff” mongers really want
All this right wing scare about the so-called Fiscal Cliff is pure hypocrisy. The Democratic Party should call them on it. George Zornick explains what the so-called “Fiscal Cliff” is really about:
But what’s important to understand – what every press account of these meetings should note – is that they’re not, in practice, proposing any sacrifice from their companies in particular nor their industries in general.
Key planks of their proposals… include a lower corporate tax rate – even though many of these companies pay little or no corporate taxes as it is. Then there’s a territorial tax system, which would allow corporations that have profits parked overseas to bring them back home without paying any taxes…
FDR’s attitude towards great concentrations of wealth
President Roosevelt did not feel that there was anything sacred about people piling up vast economic fortunes during times when so many other people were starving or homeless. He did not see that phenomenon as something that propelled our economy. In fact he saw it as a big part of the problem, something that prevented other people from obtaining their fair share of our nation’s resources. This is what he had to say on the subject at the 1936 Democratic National Convention:
There was no place among this royalty for our many thousands of small business men and merchants who sought to make a worthy use of the American system of initiative and profit. They were no more free than the worker or the farmer. Even honest and progressive-minded men of wealth, aware of their obligation to their generation, could never know just where they fitted into this dynastic scheme of things.
It was natural and perhaps human that the privileged princes of these new economic dynasties, thirsting for power, reached out for control over Government itself. They created a new despotism and wrapped it in the robes of legal sanction. In its service new mercenaries sought to regiment the people, their labor, and their property. And as a result the average man once more confronts the problem that faced the Minute Man.
The hours men and women worked, the wages they received, the conditions of their labor – these had passed beyond the control of the people, and were imposed by this new industrial dictatorship…
Those who tilled the soil no longer reaped the rewards which were their right. The small measure of their gains was decreed by men in distant cities. Throughout the Nation, opportunity was limited by monopoly. Individual initiative was crushed in the cogs of a great machine. The field open for free business was more and more restricted. Private enterprise, indeed, became too private. It became privileged enterprise, not free enterprise…
FDR also believed that the enormous income inequality that existed at the time was deleterious to democracy itself:
For too many of us the political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labor – other people's lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness.
The Wall Street “Fiscal Cliff” scam
Richard Escow, writing for Campaign for America’s Future, cogently summarizes Wall Street’s “Fiscal Cliff” scam:
Why? They’re not experts in economic policy. Quite the opposite, in fact. Many of them got where they are by persuading people to buy overpriced crap that’s bad for them… Think of it as Wall Street’s latest scam. If you liked toxic investments and the 2008 financial crisis, you’ll love their deficit deal.
The list of “Fix the Debt” CEOs includes executives from Wall Street’s largest and most notorious bad actors. These banks have committed serial fraud and gotten away with no criminal penalties and only nominal fines – fines paid by shareholders, and not the misbehaving bankers themselves…
Blankfein’s institution (Goldman Sachs) paid the largest SEC fine in history for fraudulently deceiving investors about mortgage-backed securities which it sold while knowing full well that these securities were toxic – a fact it concealed from its clients. The list of deceived investors includes many of the large pension funds that provide financial security to working Americans when they retire. Now that Wall Street’s struck these private-sector funds, they’re targeting public retirement programs too.
What we need to do
Former Clinton administration Secretary of Labor, Robert Reich, explains the situation: He begins by saying:
Then he goes on to explain what Democrats need to do: Do not allow cuts to social safety net programs that have historically created and helped maintain our middle class. Immediately after the Bush tax cuts expire, put forth programs to lower tax rates on the middle class and create jobs by investing in our nation’s future in such areas as education, improvements in our crumbling infrastructure, and an energy policy based on alternatives to the fossil fuels that are destroying our planet.
See if Republicans in Congress dare to obstruct legislation to decrease taxes on the middle class. See if they dare to obstruct legislation to create jobs in the midst of the longest sustained era of job loss or anemic job growth since the Great Depression. Democrats failed to do this adequately when they controlled the Presidency and both houses of Congress for the two year period beginning in January 2009. They paid for that failure in the mid-term elections of 2010, with a Republican landslide that resulted in a Republican majority in the House of Representatives that still remains today. When Democrats don’t fight for the interests of those who elect them they pay a high price. Let’s not let that happen again.
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