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A Progressive Tax: It's Not Socialism, It's Correctionism
People don't want to talk about taxes. Most of us are afraid that a tax increase will impact ALL of us. The media shies away from such a controversial topic. Certainly the rich don't want to talk about it. And even lower-income people seem to have this sense that they will be wealthy someday, and government shouldn't interfere with their plans.
So on we go with the cutbacks in train and bus service, and the loss of teachers, the cancellation of after-school programs in low-income areas, reductions in library hours and park services. Plus, of course, increases in state income taxes, sales taxes, property taxes, gas taxes, cigarette taxes, utility costs, license fees, parking meter rates.
The public rarely hears about one of the major causes of this assault on the middle class.
From 1980 to 2006 the richest 1% of America TRIPLED their after-tax percentage of our nation's total income, while the bottom 90% have seen their share drop over 20%.
That's a TRILLION dollars a year, one-seventh of America's total income, that went to the richest 1% while 90% of us went backwards.
But, many people ask, don't the very rich pay most of the taxes? Just federal income tax. And they pay less than 23% of their incomes in federal income tax. If state and local taxes, social security tax, and excise taxes are included, the lowest-earning half of America pays 24% of their incomes in taxes.
But isn't taxing the rich a form of socialism? Since 1980, if the average working family had received compensation based on its relative contribution to America's prosperity, it would be making an average of $45,000 a year instead of $35,000. Through 30 years of deregulation and financial maneuvering, the richest 1% have taken $10,000 a year from every American family. That's socialism in reverse.
But doesn't "income mobility" explain and mitigate the apparent inequities? In his book, "Intellectuals and Society" (Basic Books, 2009), Thomas Sowell claims that statements about inequality are "confusing statistical categories with flesh-and-blood human beings."
Sowell relies heavily on a 2007 U.S. Treasury Department report about income mobility that states "Among those with the very highest incomes in 1996 – the top 1/100 of 1 percent – only 25 percent remained in this group in 2005." But he ignores the fact that nearly 9 out of 10 of those in the top 1% remained in the top quintile of earners over those ten years. They may have dropped out of the most elite 1% group, but they remained close. The apple doesn't fall far from the tree.
But that isn't even the main point. More significantly, our economy allows a tiny percentage of us to take an inordinate amount of money from society, at an increasing rate. Some people may have dropped out of this elite group, but those who have moved in are making even more! The result is a system in which one man (hedge fund manager John Paulson in 2007) can make more money than the total of the salaries of every police officer, firefighter, and public school teacher in Chicago, while another man stands hungry in the cold. And any attempt to fix the system is called socialism.
So what's the solution? Several states have implemented more progressive tax systems. And they have apparently not caused wealthy people to transfer their fortunes out-of-state. A 2008 study by Princeton University determined that "the 'half-millionaire tax,' at least in New Jersey, appears to be an effective and efficient revenue-generation mechanism, having little impact on migration patterns among half-millionaire households."  Similarly, little adverse effect of higher taxes was found in Maryland or Oregon.  A study by the California Budget Project revealed that the number of high-income households actually grew during periods of higher income tax rates for top earners.  Oregon recently passed Measures 66 and 67, which impose modest income tax increases on the wealthiest residents and raise the corporate minimum tax for the first time in 80 years.
President Obama is right to seek a progressive federal tax structure in which the very rich will return some of the money derived from years of deregulation and shrewd financial strategies. We need Congress and the media to support this way of thinking.