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Forum Post: The Problem

Posted 12 years ago on Oct. 7, 2011, 5:01 p.m. EST by viguy007 (0)
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A recent study shows that over 70 percent of Americans derive their monthly income from an actual job where wages are paid to employees. While some very successful small businessmen, and professionals may be in the lower half of this one percent, they are not the problem. They are working and doing something that adds value to society. Entry into the top 0.5% and, particularly, the top 0.1% of wealthy Americans is usually the result of some association with the financial industry and its creations. It is questionable whether the majority in this group actually adds value or simply diverts value from the US economy and business into their pockets. Under present law, in most cases they are doing nothing illegal.

In the top 0.1% of wealthy Americans (1 in 1000), it's hard to meet one whose wealth wasn't acquired through direct or indirect participation in the financial and banking industries. The bulk of any CEO's wealth comes from stock, not income, and incomes are also very high. The vast majorities of these CEO's had nothing to do with the founding of their companies. Last year, the average S&P 500 CEO made $9M in all forms of compensation. Much of which is not subject to taxes, unlike many small businessmen. These small businessmen (and women) often know and are close to their employees and share in the pain of this economic crisis, unlike giant corporate CEO's. They have more in common with their employees, then they have with the corporate elite, the top one-half of one percent.

It's important to emphasize one of the dangers of wealth concentration: irresponsibility about the wider economic consequences of their actions by those at the top. Wall Street created the investment products that produced gross economic imbalances and the 2008 credit crisis. It wasn't the hard-working 99.9%. Average people could only destroy themselves financially, not the economic system. There's plenty of blame to go around, but the collapse of our economy started in 2007 and was primarily due to the failure of complex mortgage derivatives, CDS credit swaps, cheap Fed money, lax regulation, compromised ratings agencies, government involvement in the mortgage market, the end of the Glass-Steagall Act in 1999, and insufficient bank capital. Only Wall Street could put the economy at risk and it had an excellent reason to do so: profit. It made huge profits in the build-up to the credit crisis and huge profits when it sold itself as "too big to fail" and received massive government and Federal Reserve bailouts. Most of the serious economic damage the U.S. is struggling with today was done by the top 0.1% and they benefited greatly from it.

Wall Street executives and the top of corporate America are doing extremely well as of June 2011. For example, in Q1 of 2011, America's top corporations reported 31% profit growth and a 31% reduction in taxes, the latter due to profit outsourcing to low tax rate countries. Somewhere around 40% of the profits in the S&P 500 come from overseas and stay overseas, with about half of these 500 top corporations having their headquarters in tax havens. If the corporations don't repatriate their profits, they pay no U.S. taxes. There is no reason why these unrepatriated profits are not taxed as if they were made in the United States. Their exemption only encourages outsourcing. The year 2010 was a record year for compensation on Wall Street, while corporate CEO compensation rose by over 30%, most Americans struggled.

Production, employment, profits, and taxes have all been outsourced. Major U.S. corporations are currently lobbying to have another "tax-repatriation" window like that in 2004 where they can bring back corporate profits at a 5.25% tax rate versus the usual 35% US corporate tax rate. Based on the results of the 2004 "tax-repatriation" these profits will not be used to build productive facilities in the US, but rather Executive Compensation, Dividends and Stock Buy-backs. All of which primarily increases the wealth and benefits the corporate elite, the top 0.5% of the American people.

A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. Ordinary citizens in the bottom 99.9% are largely not aware of these systems, nor do they understand how they work. They are unlikely to participate in them, and have little likelihood of entering the top 0.1%. Moreover, those at the very top have no incentive whatsoever for revealing or changing the rules.

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