Gini's Turning 1
The economic talk is heating up again. Many businesspeople and politicians would love to convince America that the tax cuts should remain in place, to stimulate the economy and ensure less government interference in our lives.
In 1981 Ronald Reagan's Economic Recovery Act cut taxes. In 2001 George Bush's Economic Growth Act cut taxes.
Before 1980 our country was prosperous and relatively equal. A member of the middle class had stability, job security, a close bond with millions of Americans who were very much alike in economic terms. Since that time, our prosperity has continued, as worker productivity surged, but compensation for regular wage earners has remained stagnant. An average two-income family today has less disposable income than one-income families had 30 years ago.
America is currently experiencing the greatest disparity between rich and poor since the Great Depression, with an income gap that is worse than anywhere else in the developed world. The Gini Coefficient, a measure of inequality from 0 (everyone equal) to 1 (one person owns everything), has risen in the U.S. from .40 to .47 since 1980, and currently exceeds that of dictator-led countries such as Iran, Pakistan, Laos, Ethiopia, and Russia.
Hedge fund manager John Paulson made a smart bet against the mortgage industry in 2007 and 'earned' over three billion dollars. Three billion dollars would pay the salaries of all Chicago public school teachers, police officers, and firefighters for a full year.
This seems like an extreme example, but it's not. Between 1970 and 2000 the annual pay increase for wage earners, adjusted for inflation, averaged 5 cents per hour, while CEO raises averaged $660 per hour. The top 50 hedge fund managers in 2007 made a total of $29 billion. These 50 people made more money than ALL the Official Development Aid given by the U.S. to poor countries last year.
The top 15,000 income takers in this country made enough money to pay for all the gasoline, at $4 a gallon, used by American motorists last year. That's $300 billion.
So what's wrong with having rich people? Our economic growth is driven by the belief in a capitalist system, open to all, through which an industrious and risk-taking individual might become the richest person in the world. We admire this, aspire to it, desire to be like our wealthy role models. We do not wish to regulate the companies and executives who lead the way, for this would impede our country's economic progress. "Greed is good," said Gordon Gekko in the 1987 film "Wall Street."
But greed hasn't been good for the vast majority of Americans who are struggling to buy food and make house payments. Adam Smith, the father of capitalism, believed that unrestricted businesses tend to engage in "conspiracy against the public." John Kenneth Galbraith said, "Capitalism left to its own devices, doesn't work properly; it excludes the poor, ruins the environment, and fails to deliver enough collectively produced goods, such as roads, reservoirs, schools and hospitals."
The very wealthy will tell us that they pay the greater share of income taxes in this country. But hedge fund managers like John Paulson pay only a 15% capital gains tax on their billions. When income taxes, payroll taxes, sales taxes, and utility taxes are added up, the typical American wage earner pays about 40% in taxes. Billions of dollars are being made on financial deals that transfer the profits of America's productivity to the accounts of a few very rich people, while regular workers pay a higher percentage in overall taxes.
Nobody's blaming very rich people for making money. They should simply return a fair share, through progressive taxes, to the system that made their extraordinary wealth possible, just as average American workers are required to pay for the benefits accrued to them through the structure of society.
If not, inequality in the U.S. will continue to grow, with dangerous consequences. Inequality compromises the demobecomes a greater factor in the election process. It removes the incentive among the rich for the support of societal needs such as health care and infrastructure repairs. Inequality has even been shown to impact the health of, and incite violence among, those who don't fit into the elite group at the top. Supporting society with tax money makes the country safer and more livable for all of us.
In the end, if it's still difficult to see the value of fair taxation, it might be appropriate to ask if any one person is really worth 40,000 teachers.
Paul Buchheit is on the faculty of the Chicago City Colleges and DePaul University. He is the founder of Global Initiative Chicago (GIChicago.org), and the founder of fightingpoverty.org. He is the editor and main contributor to "American Wars: Illusions and Realities" (Clarity Press).