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Forum Post: Tax System and Resulting Wealth Concentration Ruined Economy, Threatens Democracy

Posted 6 years ago on Oct. 22, 2011, 8:07 a.m. EST by PeteG2 (393)
This content is user submitted and not an official statement

Any attempt to improve the economic fortunes of working poor and middle class must include consideration of this shameful fact:

Warren Buffett, a billionaire, pays a total tax rate (combined federal, state, local .. yes including indirect corporate taxes) of 11% of his investment income and gains. A millionaire couple can easily pay only 20% of their investment gains in total taxes (again fed, state, local taxes and 75% of these taxes are indirect corporate taxes: their out-of pocket direct tax rate is 4%). A typical single person earning a minimum wage pays total taxes (fed, state, local) amounting to 37% of her wages, more than triple Mr. Buffett’s rate. Annually, Mr. Buffett pays taxes that are 2% of his wealth (net worth), while the majority of minimum-wage earners pay more than a 100-fold higher rate on their wealth. No joke. See http://fairsharetaxes.org for spreadsheets.

The top 1% in the US have gone from owning 22% to 40% of the nation's wealth in the last thirty years. This is largely due to the tax cuts for the wealthy investor class, started under Reagan 30 years ago. Since then, the wealthy have had one tax cut after another, the national debt as percent of GDP has gone steadily up, and the share of both income and wealth of the top few percent has skyrocketed. The top 10% now take about half of the nation's income.

The tax cuts for the rich were supposed to encourage investment and strengthen the economy. Instead, average GDP growth during the 30 years since the tax-cuts-for-the-rich began has dropped 25% compared to the 30 prior years. When President Clinton increased taxes on the wealthy, the GOP predicted recessions and unemployment. Instead we had the best economic decade of the century. The GOP and President Bush reduced taxes on the wealthy and we suffered our worst economy in 80 years. Our only other worse recession (the Depression) occurred the last time the top 1% accumulated 40% of the nation's wealth, soon after Republicans slashed taxes on the wealthy in the 1920's. Sound familiar?

How do tax cuts for wealthy investors produce worse growth? Here is the main way: The favored tax treatment for investments and the wealth concentration that resulted leads to the demand for investments exceeding the supply of worthy investments ... Any attempt at regulation is overwhelmed by "supply and demand" market forces (see Econ 101) ... The price of investments MUST rise "artificially" and unsustainably ... Investment bubble ... Burst bubble ... Recession ... Every 6-8 years all but the wealthiest are at risk of losing their jobs, their homes, their opportunity to educate their kids, and their retirement savings ... and the government loses more tax revenue.

A fair tax system also promotes democracy. By reducing the concentration of wealth into very few families, it reduces their undue influence on our laws and government. Cutting taxes for the working poor and middle class means increased education opportunity for all increases the likelihood that future generations elect governments that are more likely to make further smart policy decisions.

Finally, under a fair system of taxes, the wealthy would benefit from the knowledge that they are giving back their fair share to the society. Past generations of workers, taxpayers, and soldiers have made the prosperity of today’s wealthy possible. Today’s wealthy should be willing to contribute their fair share to making the prosperity of future generations possible. More and more of the wealthy are coming to this realization and in the words of a real estate millionaire: "Those of us who have the greatest ability to pay are not being asked to. I am not keen on being part of the freeloader class."

For more, including a proposal for comprehensive tax reform which would have everyone pay their fair share, cut middle-class taxes, reduce the deficit, improve the economy for everyone, and strengthen the US as a for good in the world: http://fairsharetaxes.org



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[-] 1 points by LVTfan (1) 6 years ago

Might I propose an alternative that I think would be more just, more logical, more efficient, more administrable (i.e., not subject to evasion), and which would have desirable rather than undesirable incentives?

It comes out of the ideas of Henry George (b. 1839, Philadelphia; d. NYC, 1897), the author of several books, including "Progress and Poverty" and "Social Problems." P&P sold something like 6 million copies between 1880 and 1900, making it the #2 selling book of the era behind the Bible (how many books sell a million copies today, with a much larger population?)

George recognized the concentration of wealth and income that had occurred in the first 100 years of our history as a nation, and sought its cause. In the process of his analysis, he saw the remedy, which resides in treating the value of land and of natural resources as our COMMON treasure, while treating that which individuals groups of individuals create as their private treasure.

It is interesting that you quote a real estate millionaire. A significant portion of their holdings is in the appreciation of land value. The community makes the land valuable; why should we permit individuals (or corporations) to be the financial beneficiaries of that? Leona Helmsley could have been describing tax structure, not tax evasion, when she said "WE don't pay taxes. The little people pay taxes."

P&P is online, including a modern abridgement -- see http://www.progressandpoverty.org/ 'Social Problems" is linked from the front page of http://www.wealthandwant.com/ (the URL comes from the subtitle to P&P. You might also search on "quotable notables" "quotable nobels" wealthandwant, lvtfan, "cooperative individualism." See also http://masongaffney.org/, http://henrygeorge.org/, http://urbantools.org/, http://thesingletax.com.

[-] 1 points by PeteG2 (393) 6 years ago

Interesting. But I'm not sure how it would be applied to fix our unfair, wealth-concentrating tax system. If land and natural resources are a common treasure, then would you propose taxing those only? So that's a real estate tax, which we already have, and it's very regressive in terms of income or wealth. Warren Buffet for example has real estate holdings that are perhaps 0.1% of his wealth (net worth) and income. A middle class family, especial a young one, pays real estate tax on the full value of their home (mostly "owned" by their bank), which may be many times their net worth and income.

You see by treating different kinds of wealth differently for taxes, you allow the wealthy, in particular, to shift their wealth into non-taxable forms. I could go further, but I'm not sure exactly what you proposing. My very concrete tax reform proposal is at: http://fairsharetaxes.org/ProposedReform.aspx Have a look and tell me what you think.

[-] 1 points by Yepper (277) 6 years ago

Warren Buffets company owes over 5 Billion in back taxes he refuses to pay from 2005.