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Does limited government mean allowing one man to take $4 billion from the economy in one year? Hedge fund manager David Tepper did this in 2009, making enough money to pay the salaries of every police officer, firefighter, and public school teacher in Chicago.
To anyone who cries socialism at the first hint of taxes, do you want to accept a system that says a person making a clever bet on the market is 50,000 times more valuable than the person who comes rushing to your house in an emergency?
Free market defenders claim that the rich deserve what they earn because of hard work and initiative, and that any redistribution of such compensation is socialism. But did Tepper 'earn' his $4 billion? Is that fair compensation for a savvy guess about the upturn of financial instruments? Isn't the financial system partly responsible for his success? The long history of market structuring and government deregulation fashioned by countless free-market advocates and supported by voters had something to do with it. Instead, a paycheck of $4 billion redistributes much of America's assets to one well-positioned man.
But, some would ask, don't the very rich give it back through taxes? Not really. 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 doesn't the great wealth of the rich stimulate the economy? Not necessarily. Low-income earners have a higher "Marginal Propensity to Consume," which means that they spend a greater percentage of their overall income on consumption. High-income earners, on the other hand, will save more. The very rich in our country have put much of their money into mansions, yachts, jewels, and art.
But haven't the very rich lost massive parts of their fortunes in the recession? They've lost money, but no more, percentage-wise, than average mid-level earners. Wealth data from the Census Bureau and the Federal Reserve show that the richest households have INCREASED their median incomes relative to other earners since 2006.
But won't we all be rich someday, if we leave the markets alone? Just as we'll all be pro athletes someday. 90% of us have a common enemy. Based on Internal Revenue Service figures, if we had all participated in an American economy that quintupled in value since 1980, the average middle-income family would be making $45,000 a year instead of $35,000.
Twenty-five years of shrewd financial strategies, government deregulation, and tax cuts have allowed the richest 1% to TRIPLE their incomes, AFTER TAXES, while the bottom 90% has seen their share drop over 20%. According to IRS figures, the richest 1% took in about 6.5% of America's total income in 1980. In 2006 it was about 19.5%. That's a TRILLION dollars a year, one-seventh of America's total income.
The result of this reverse flow of money is that the United States has the highest level of economic inequality in the developed world. It has greater inequality than at any time since the Gilded Age of rich industrialists in the late 19th and early 20th centuries.
To you libertarians and Tea Partiers and anti-government free-market advocates: MOST OF US ARE ON THE SAME SIDE! Most of us should not pay any new taxes. Our hard-earned money has flowed to a small percentage of Americans who love to hear the old socialist argument.
Yes, the government should have a minimal role in a capitalist society, but even the greatest free-market economists have recognized the dangers associated with unregulated greed. A progressive federal income tax provides needed regulation. We had this between the 1950s and 1970s, when society had a healthy degree of economic equality.
Instead, essential police and firefighting forces are being reduced. Teacher layoffs are increasing classroom sizes, weakening an educational system that should be the heart and soul of our country. Low-income people traveling to their jobs on off-hours take the brunt of transit cutbacks. We're seeing cutbacks in after-school programs in low-income areas and 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.
We're hurting ourselves in a more personal way, too. In 'The Impact of Inequality,' Richard Wilkinson documents the numerous studies that correlate inequality with shorter life expectancies, increased disease and health problems, and even higher murder rates. Most analysts attribute these effects to the stress of 'relative deprivation' -- trying to survive in a community where economic, educational, and health care disadvantages persist in an otherwise prosperous environment.
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.
Progressive taxes in these states have helped to preserve public services and repair infrastructure. The same should be done at the national level. The rich people won't move away. They know they've got it good.